Will the Halving of Bitcoin Encourage Continued Price Gains?

The price of Bitcoin (^BTCUSD) is up more than +4% today at a 2-year high.  Bitcoin prices have recovered from last month’s 2-month low and moved higher as the success of spot Bitcoin exchange-traded funds (ETFs) has sparked the latest rally in cryptocurrency.  According to Bloomberg data, nine new spot Bitcoin ETFs that began trading on January 11 have attracted more than $9 billion of investor inflows. 

The two most successful Bitcoin ETFs launched based on assets garnered after a month on the market include spot Bitcoin ETFs from Blackrock and Fidelity Investments. There are signs that investing in Bitcoin is expanding after cryptocurrency platform BTC Markets Pty said there are indications of an “increasing movement of institutional money into the asset class.” 

The hype over the introduction of spot Bitcoin ETFs sparked a rally in Bitcoin last month to a 2-year high of $49,022.  However, Bitcoin prices remain about $20,000 below their record high from 2021 and retreated to a 2-month low late last month before stabilizing and moving higher again.  Fundstrat Global Advisors said that aside from ETF inflows, sentiment toward Bitcoin is “typically positive” during the Lunar New Year holidays that are currently underway in Asia.

Another supportive factor for the recent uptick in Bitcoin prices is optimism about the quadrennial Bitcoin halving that is due to begin in April.  Halving cuts the quantity of Bitcoin that miners receive for operating the computers that verify transactions on the blockchain.  Halving is key to capping the supply of Bitcoin at 21 million tokens, and rewards for miners in April’s halving will drop to 3.125 coins per blockchain from 6.25 coins.  The event is often viewed as a major bullish factor for Bitcoin prices based on past halving events since the halving indicates slower bitcoin supply growth going forward.

Crypto supporters argue that halving Bitcoin prevents inflation and is an excellent reason to invest in cryptocurrency.  Unlike fiat money, which can lose its value to inflation if too much is printed, the halving of Bitcoin periodically slows the pace at which Bitcoin is created so as not to outstrip demand.  According to current calculations, there will be 64 Bitcoin halvings before the maximum of 21 million Bitcoin tokens is reached in 2140, at which point halvings will stop.  Once that happens, Bitcoin miners will no longer collect rewards and are expected to rely on charging fees for handling transactions, similar to what credit card companies do.  However, critics argue that there is an outside chance that the rules could be changed to break the 21 million Bitcoin cap.

More Crypto News from Barchart

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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