According to a recent analysis by Coinbase, the biggest cryptocurrency exchange in America, the impact of Bitcoin halving events on the asset's performance is still unknown because a number of exogenous factors have a big impact on how the market behaves.
Every 210,000 blocks, or every four years, Bitcoin is halved, according to a June 18 Crypto Potato report. The block rewards for Bitcoin mining are halved by 50% during the event. The first halving took place in 2012, while the fourth is anticipated to take place in April and May of 2024.
“Detrending Bitcoin price action from the movements in such factors helps elucidate the situation somewhat,” David Duong, head of institutional research at Coinbase, said in the Crypto Potato report. “However, outside of the third halving, evidence that these halving events supported Bitcoin price action is not entirely clear cut.”
Although the halving is viewed favorably since it is thought to increase Bitcoin's potential scarcity and promote its supply-demand dynamics, it would be difficult to understand the market's response without disentangling the effects of changes in the value of the U.S. dollar, interest rates and global liquidity, Crypto Potato said.
Block rewards for Bitcoin will drop from 6.25 BTC to 3.125 BTC with the forthcoming halving, according to Crypto Potato. Since there have only been three halving events, there is still little indication of the market's reaction, according to Duong, who also noted they all coincided with substantial monetary and fiscal changes.
For the third phase of quantitative easing, the Federal Reserve Board started purchasing long-dated treasuries and mortgage-backed securities in 2012, Crypto Potato reported. Brexit sparked financial fears in the E.U. and the U.K. during the second halving in 2016, which increased BTC buying.
When the COVID-19 epidemic hit in 2020, governments and central banks responded, "with unprecedented levels of stimulus," which increased global liquidity, according to Crypto Potato.
Duong noted a clear picture of the asset's performance under various economic regimes would emerge once the impact of global liquidity on BTC's price behavior was removed, Crypto Potato said. Since the unfavorable market events in May through June 2022, the crypto market has been tracking global liquidity movements.
Duong said it is crucial to keep in mind as the next halving draws near that the current surge in global liquidity will obscure the net effect on bitcoin's price behavior, according to Crypto Potato.
