Author: Helene Braun, CoinDesk; Translated by: Tao Zhu, Jinse Finance
Experts predict that the upcoming Bitcoin halving may not have as big an impact on Bitcoin’s price as previous cycles.
That’s because spot bitcoin exchange-traded funds (ETFs) have pushed bitcoin to new highs as supply pressures intensify.
Nonetheless, the long-term impact on Bitcoin prices and subsequent inflows into ETFs would be positive.
The Bitcoin (BTC) halving is often viewed as a bullish price catalyst, but the event may not be as positive as the market thinks due to the approval of spot exchange-traded funds (ETFs).
The halving, which occurs every four years, cuts Bitcoin’s supply growth in half, which has historically put upward pressure on the price of the largest digital asset. Previous halving cycles have pushed Bitcoin to new highs, and this time around, strong demand for spot ETFs could add more fuel to the rally.
“If we look at the overall demand for ETFs since they launched, it has created a massive supply shock,” said Brian Dixon, CEO of investment firm Off the Chain Capital. “Once the halving happens and supply is reduced further, it’s logical that prices will go up.”
On the surface, this may be the case, as demand from the fund clearly outstrips the 900 new BTC mined each day. When supply is cut in half, there may be a greater pull on the price.
However, it may not play out the same way this time around.
Since spot ETFs began trading in the U.S. on Jan. 11, the price of Bitcoin has risen 46%. Demand for these funds has been so strong that the price of the digital asset has risen to a record high. But the market hype may be overblown.
"This is the first time Bitcoin has broken out of its all-time high before the halving, so there's some concern that ETFs are driving demand and that maybe we'll be hovering around these levels for a while," said David Lawant, head of research at FalconX.
Anthony Anderson, founder and CEO of Param Labs and Kiraverse, echoed the sentiment. “Bitcoin ETFs have preempted the impact of the supply halving by purchasing a large amount of BTC since the beginning of the year.”
Additionally, James Seyffart, ETF analyst at Bloomberg Intelligence, said the halving may not affect ETF flows, at least in the short term, as investor demand is already strong.
“We know that many miners use OTC to sell their bitcoin, and ETF issuers also use OTC platforms to acquire bitcoin as money flows into the funds. So in theory, the halving of bitcoin sales by miners could mean that ETF inflows would have a larger impact. But over the past few months, ETF inflows have far exceeded any funding provided by miners from operations,” he said.
Seyffart added: “So even if it did have an impact, it’s unlikely to be a huge impact in my opinion.”
That’s not to say the halving won’t be a significant catalyst for long-term flows in both Bitcoin and ETFs. After all, the success of ETFs appears to be closely tied to the price of BTC, and vice versa. The halving may even bolster Bitcoin’s appeal as an asset class for institutional investors. “I think the halving is going to be one of the best things to happen to Bitcoin since the launch of the ETF,” said Bob Iacchino, co-founder of analytics firm Path Trading Partners. “At its core is an inflation protection mechanism, and inflation is picking up.”
In fact, the hype surrounding the halving may help bring Bitcoin to the attention of many investors seeking alternative assets to hedge against global macro volatility.
“The halving comes at a time when people are a little nervous about hedging risk in Bitcoin,” Lawant said, noting that many investors are starting to pay more attention to how to protect their portfolios from major changes in the global economy. The economy and asset classes that have spot ETFs and shrinking supply will have a positive impact on ETF flows.”
Seyffart said this supply shortage could also have a long-term impact on ETF flows because it will affect Bitcoin’s “permanent marginal supply.” He added that while the marginal supply impact from ETF inflows in the first three months is much higher than the halving could have, the reduction in BTC supply is “permanent.”
Whatever the case may be, the market may need to prepare for volatility in Bitcoin’s short-term trading, and perhaps for ETF flows after the halving, Anderson said, noting that in the long run, net flows to funds should reach similar rates to what is currently being seen.
