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(Kitco News) – As the cryptocurrency market consolidates following the recent rise in prices sparked by the XRP ruling and multiple spot Bitcoin (BTC) exchange-traded fund (ETF) applications, traders are now looking for the next catalyst that will generate the momentum necessary to reignite bull market conditions.
Many see the next Bitcoin halving – expected to occur in mid to late April 2024 – as the only major catalyst on the horizon, with previous market cycles showing that bull markets in the crypto coincide with the quadrennial reduction in new supply that comes as the block reward for Bitcoin mining is cut in half.
To get more insight into how the upcoming Bitcoin halving will affect the price of Bitcoin and the broader crypto market, Kitco Crypto talked with Ahmed Ismael, co-founder and CEO of FLUID, an AI-driven liquidity aggregator for crypto markets.
In the near term, Ismael said Bitcoin’s price “will likely continue consolidating following the severe pullback we saw in 2022,” but noted that an “Upside move to the $40K level is a reasonable expectation as many of the headwinds facing crypto last year, specifically the macro ones, have largely subsided for all risk assets, including crypto.”
“Crypto-specific factors like the possible U.S. spot BTC ETF approval are a narrative tailwind that would likely provide more upside support should approval occur,” he said. “Similarly, other possible tailwinds for crypto include the strong performance of U.S. equities this year, and a building downtrend in the U.S. dollar, a tailwind for all risk assets.”
Due to the well-known halving event cycle, Ismael said “The halving event is more likely already priced into BTC markets than not,” and FLUID “does not see the halving itself as a primary catalyst for more BTC upside.”
With the BTC emission rate set to drop from 6.25 BTC per block to 3.125 BTC per block, Ismael said that miners would be the most affected group. “Halving events make it increasingly more challenging to operate as a miner due to this negative impact,” he said.
“Should BTC price, in USD terms, not continue to grow exponentially over time, this would make mining unprofitable for many operations,” he warned. “Miner revenue effectively halves as they receive 50% less BTC per mined block post the halving event. This impact ensures miners run as economically efficient business as possible given such a material shock to their revenue. As electrical cost is such a large input, they, therefore, optimize for this cost.”
The fact that the Bitcoin mining difficulty continues to reach new all-time highs only adds to the expenses incurred by miners as “they need to invest in more powerful hardware to remain at the same level of profitability given their reduction in revenue,” Ismael said. “Those who do not run efficient operations will exit the market.”
Switching gears to the topic of the recent spot BTC ETF applications and whether the halving factored into their timing, Ismael said, “BlackRock, as a highly sophisticated asset management firm, has likely done its homework regarding the cyclical nature of BTC and crypto markets.”
“It makes sense that in anticipation of a coming bull market, BlackRock would want to position itself well to offer investment products to clients to capture potential exponential gains,” he added. “In light of the events in crypto last year, FTX, Celsius, etc., a tremendous amount of trust has been lost in crypto. As a highly reputable financial institution, BlackRock likely sees an opportunity to step into this void and offer a credible product that the traditional finance world understands well and trusts.”
When it comes to price predictions, Ismael refrained from providing specific price levels, saying, “Crypto markets will most likely achieve new all-time highs, but the magnitude of these moves is difficult to assess in any meaningful way.”
“Historically, post-halving periods see the greatest upside in BTC price, and exponential gains, particularly the 18 months following the halving,” he added.
As each subsequent halving sees the new BTC supply reduced, it’s possible that over time, as the emission schedule approaches 0, the effect the halving has on the market will be diminished as fewer and fewer new BTC are minted.
With 19,438,993 BTC currently in circulation, that means 92.57% of the total Bitcoin supply has already been created, leaving roughly 1.56 million BTC to be mined between now and 2140.
When asked if the diminishing block reward will result in the 4-year halving cycle starting to have less effect on the broader crypto market, Ismael said, “The broader crypto market is still in its infancy within a multi-decade structural growth trend. BTC is more likely than not to remain the bellwether asset for this space for the foreseeable future, at least until such time many more crypto applications are born with robust and sustainable use cases.”
“As money flows enter the space primarily through Bitcoin, BTC will continue to drive the broader crypto cycle,” he added. “To a large extent, the four-year and broader crypto cycle is driven by human nature (fear and greed dynamics). As the market remains dominated by retail investors today, this dynamic will likely remain a primary driver until the nature of participants changes materially, i.e., far greater institutional involvement with goals different than those of the average retail investor.”
According to a recent survey conducted by CryptoVantage, 70% of Americans who bought at least some cryptocurrency in the past five years believe Bitcoin will return to its all-time high of $69,044 within the next five years and 23% think it will happen this year.
The biggest factor cited as driving people to invest in cryptocurrencies was inflation, with 54% of respondents saying inflation is a major concern.
“Even though respondents are concerned about the fallout from the FTX collapse and the SEC’s recent legal actions, for example, the survey finds them generally hopeful that the cryptocurrency market will recover, sooner or later,” CryptoVantage said. “However, the expansionary markets following halvings have usually arrived a year later (2013, 2017 and 2021), so the next halving event may not help BTC reach new highs until 2025.”
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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