Cryptocurrency exchange Coinbase says bitcoin dips are likely to be “more aggressively bought compared to previous cycles, even as volatility persists during price discovery.” The crypto firm noted that the impact of U.S. spot bitcoin exchange-traded funds (ETFs) and the larger inflow of institutional demand can be seen in the open interest of bitcoin futures. […]
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Bitcoin halvings have historically been viewed as a bullish event for the cryptocurrency — and the upcoming one, expected in April, could benefit from an even more ideal setup than in previous cycles, according to crypto-market observers.
Halving is a mechanism written into the Bitcoin blockchain’s algorithm to control the coin’s supply, which has a cap of 21 million. At halvings, the reward for bitcoin mining is cut in half, meaning miners will receive 50% fewer bitcoins for verifying transactions.
Halvings are scheduled to happen after every 210,000 blocks that are mined — or about every four years — until the maximum supply of bitcoin is all released.
Bitcoin
BTCUSD,
tends to see price appreciation in the months after halvings, according to historical data. The next halving is expected to happen on April 19, according to a projection by bitcoin investment platform Swan Bitcoin.
But this particular halving comes at the first time in bitcoin’s history where the cryptocurrency faces a confluence of factors impacting both its supply and demand side, according to Cosmo Jiang, portfolio manager at crypto asset manager Pantera Capital.
As halvings control bitcoin supply, bitcoin exchange-traded funds are bringing in “steady daily inflows” into the crypto from the demand side, Jiang said in a call. In January, the U.S. Securities Exchange and Commission approved 10 bitcoin ETFs for the first time in history.
Read: 5 ways bitcoin ETFs are already changing how crypto is traded
Increased institutional participation recently pushed bitcoin to a level near its record high, less than 50 days before the expected date of the halving. Bitcoin has rallied more than 40% so far this year to roughly $62,600, and is now less than 10% off of its all-time high of $68,990, reached in November 2021.
This run-up is different from bitcoin’s historical pattern before halving, according to Martin Leinweber, digital-asset product strategist at MarketVector Indexes. Historically, bitcoin’s performance has been relatively muted in the two to three months before halving, Leinweber noted.
Meanwhile, the Bitcoin blockchain is more secure now than it has been during previous halvings, according to Adam Swick, chief growth officer at bitcoin-mining company Marathon Digital Holdings Inc.
MARA,
Bitcoin’s total hash rate, or the total computational power securing the blockchain, hit a record high of around 600 million terahashes per second in February, according to data from Blockchain.com.
That helps alleviate some concerns around the security of the Bitcoin blockchain after the halving, as some miners may be forced to go offline when the rewards they get are cut in half, noted Swick.
While halving is generally a boon for bitcoin’s value, the crypto’s price tends to be highly volatile while macroeconomic conditions are uncertain. That may apply in the current climate, as some investors are worried that progress in disinflation may stall, while it remains unclear when the Federal Reserve will start cutting interest rates.
Michael Novogratz, chief executive at crypto investment firm Galaxy Investment Partners, recently told Bloomberg TV that bitcoin may see “some corrections” to its price before rallying to new record highs.
Bitcoin’s valuation, often viewed as speculative, can be dissected more accurately through the lens of the ‘realized price‘ metric.
This measure, reflecting the average cost at which all current Bitcoin holders purchased their coins, negates the impacts of volatility, thus offering a more realistic view of Bitcoin’s value over time.
Historical data reveals distinct cycles wherein Bitcoin’s market price traded beneath its realized price, as shown by the blue boxes in the chart below.
Specifically, it saw significant drops in value during the following periods:
Following these periods, Bitcoin has consistently traded above the realized price, illustrating a robust rebound pattern.
As of 2023, Bitcoin’s price at $26,800 is considered fair against the realized price of $20,300. This continual pattern of ‘higher highs’ demonstrates the inherent resilience of this digital asset.
Projecting the next bottom cycle based on Bitcoin’s realized price presents an intriguing thought experiment. While historical performance cannot conclusively predict future price action, understanding cycle patterns allows for a more holistic view of the Bitcoin market.
Historical data shows that in 2011, the bottom realized price was $4.50, which surged 55x to $250 in the 2015 bottom cycle.
Subsequently, the bottom in 2019 saw a 22x increase to $5,500.
The 2022 cycle bottomed at $20,000, marking a 3.6x increase.
If we follow this pattern of halving the multiplier with each cycle, the next bottom, hypothetically, could be around $36,000, reflecting a 1.8x increase compared to the 2022 bottom.
Ultimately, this exercise allows us to envision what Bitcoin’s valuation could look like should it follow similar patterns as previous cycles after the upcoming 2024 halving. While the future remains uncertain, contextualizing Bitcoin’s current position relative to past realized price data provides a more explicit framework to anticipate possibilities.
The post Next cycle’s hypothetical $36k Bitcoin floor, exploring historical data to project future benchmarks appeared first on CryptoSlate.