Bitcoin’s reward halving and its impact on the market
The cryptocurrency market is eagerly anticipating the fourth mining reward halving of the Bitcoin blockchain, which is scheduled to take place in April 2024. Many hope that this event will trigger a significant price surge, as it has done in the past.
However, it’s important to note that previous halvings did not single-handedly cause bull runs. According to data tracked by MacroMicro, macroeconomic factors such as abundant fiat liquidity conditions also played a significant role.
Bullish reward halvings?
Reward halving refers to the programmed code that reduces the rate at which new Bitcoins are created by 50% every four years. The upcoming halving will cut the per-block reward paid to miners from 6.25 BTC to 3.125 BTC.
In the past, halvings occurred in November 2012, July 2016, and May 2020. Following each halving, Bitcoin experienced triple-digit price rallies, reaching new record highs in the subsequent 12-18 months before entering significant downtrends.
Bear markets tended to lose momentum around 15 to 16 months before the next halving. Bitcoin’s year-to-date gain of 56% in 2023 aligns with the timing of previous price bottoms, indicating a potential recovery from the bear market depths.
The importance of M2 growth rate
The magnitude of the expected post-halving uptrend is likely dependent on the M2 money supply growth rates of major central banks, including the U.S. Federal Reserve, European Central Bank, Bank of Japan, and People’s Bank of China.
M2 represents the total value of fiat currency in circulation for each central bank. Previous bullish runs following halvings coincided with a 6% or higher aggregate M2 money supply growth among these four central banks. Conversely, bear markets were accompanied by a deceleration in the money supply growth rate.
This pattern supports the notion that Bitcoin is a pure play on fiat liquidity. While the total M2 money supply growth rate has turned positive this year, it remains below the 6% threshold. Most central banks, including the Fed, have raised interest rates to combat inflation, making it unlikely that liquidity easing will occur in the near future.
Frequently Asked Questions
- What is Bitcoin’s reward halving?
Reward halving is a programmed event that occurs every four years on the Bitcoin blockchain, reducing the rate at which new Bitcoins are created by 50%. - How did previous halvings affect Bitcoin’s price?
Previous halvings led to triple-digit price rallies, reaching new record highs in the following 12-18 months. However, bear markets usually started losing momentum around 15 to 16 months before the next halving. -
What role do macroeconomic factors play in Bitcoin’s price?
Macro factors, such as abundant fiat liquidity conditions and M2 money supply growth rates of major central banks, also influence Bitcoin’s price. Bullish runs coincided with higher money supply growth rates among these central banks. -
Is Bitcoin a pure play on fiat liquidity?
Yes, Bitcoin is often considered a pure play on fiat liquidity. Its price tends to respond to changes in the M2 money supply growth rate and liquidity conditions. -
Will the upcoming halving trigger a bull run?
While the halving is an important event, it does not guarantee a bull run. The magnitude of the post-halving uptrend will depend on various factors, including macroeconomic conditions and M2 money supply growth rates. -
Are central banks expected to ease liquidity in the near future?
The probability of renewed liquidity easing in the months ahead appears low, as central banks, including the Fed, have raised interest rates to combat inflation.
Conclusion
Bitcoin’s upcoming reward halving holds the potential for a significant price surge, as seen in previous halvings. However, it’s crucial to consider macroeconomic factors and M2 money supply growth rates, which have historically influenced Bitcoin’s price movements. While the total M2 money supply growth rate has turned positive, it remains below levels associated with previous bullish runs. The likelihood of major central banks easing liquidity in the near future also seems low. Traders should keep these factors in mind while assessing the potential impact of the halving on Bitcoin’s price.
