May 30, 2024

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The bullish Bitcoin (BTC) halving narrative may be dampened by strong demand for ETFs

The bullish Bitcoin (BTC) halving narrative may be dampened by strong demand for ETFs

Bitcoin (btc) The halving – which is often seen as a bullish catalyst for the price – may not be as positive as the market thinks, thanks to the approval of exchange-traded funds (ETFs).

The halving, which occurs every four years, halves the growth of Bitcoin supply, historically causing upward pressure on the price of the largest digital assets. Previous halvings have pushed Bitcoin to new highs, and this time, strong demand from spot ETFs may add more fuel to the rally.

“If we look at overall demand since the launch of ETFs, it has created a really huge supply shock,” said Brian Dixon, CEO of investment firm Off the Chain Capital. “Once the halving happens, and supply decreases further, it is reasonable to think the price will rise.”

On the surface, this may be the case for demand from funds It was so much more From 900 new BTC mined daily. When this supply is cut in half, it may lead to a greater impact on prices.

However, things may not go the same way this time.

The price of Bitcoin has risen 46% since January 11, when spot ETFs began trading in the US. Demand from these funds was so strong that the price of digital assets rose to a new all-time high to keep up. Bitcoin buying attack. But the market may have gotten a little ahead of itself in the hype.

“This is the first time Bitcoin has broken its all-time highs before the halving, so there is a little bit of concern that ETFs have pushed demand forward and that we will probably stay where we are for a while,” said David Lawant, head of research at FalconX.

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Anthony Anderson, founder and CEO of Param Labs and Kiraverse, echoed this sentiment. “Bitcoin ETFs have pre-empted the impact of the supply halving by holding Bitcoin extensively since the beginning of the year.”

Also, the halving may not impact ETF flows as well due to already strong demand from investors, at least not in the short term, according to Bloomberg Intelligence ETF analyst James Seyfart.

“We know that many miners are using OTC desks to offload their bitcoins, and ETF issuers are also using OTC desks to get their bitcoins as flows come into the fund. So in theory, a potential halving of bitcoin sales could It means ETF flows will have a greater impact on the underlying market. But over the past few months, ETF flows have largely outpaced anything miners have provided from operations.”

“So, if it does have an impact, it's unlikely to have a very significant impact in my view,” Seyphart added.

This does not mean that the halving will not be an important catalyst for Bitcoin and ETF flows in the long term. After all, the success of ETFs seems to be closely linked to the price of Bitcoin and vice versa. The halving may increase the attractiveness of Bitcoin as an asset class for institutional investors. “I think the halving will be one of the best things for bitcoin since the launch of ETFs,” said Bob Iacchino, co-founder of analytics firm Path Trading Partners. “In essence there is a mechanism to protect against inflation and inflation is rising again.”

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In fact, the hype around Bitcoin halving may help put it in front of many investors looking for alternative assets to hedge against global macro volatility.

“this [Halving] “This is happening at a time when people are somewhat concerned about the risks that Bitcoin is hedging against,” Lawant said, noting that many investors have begun to pay more attention to how to protect their investment portfolios from any major change in the global economy and have access to investment funds. Instant circulation. An asset class with shrinking supply “will be positive for ETF flows.”

This supply shortage could also lead to a long-term impact on ETF flows because it would impact the “marginal supply of Bitcoin forever,” Seyphart said. He added that although the marginal supply impact from ETF flows in the first three months was much higher than what a halving would create, the Bitcoin supply reduction is “permanent and will be forever.”

Whatever the situation, the market may need to brace for short-term volatile trading in bitcoin and possibly an inflow of ETFs after the halving, Anderson said, noting that in the longer term, net inflows to funds should come in at a similar pace seen currently.