The Bitcoin ETF frenzy means this halving will be different

Bitcoin has rallied 73% this year, driven by record inflows into new spot exchange-traded funds.

Investors now look towards the upcoming halving, an event designed to shrink the cryptocurrency’s supply and, in theory, drive up the price.

Each of the three prior halvings since Bitcoin’s creation has seen large — but volatile — price rallies.

But this time, Bitcoin ETFs have changed the market dynamics, said Coinbase analysts in a Tuesday report.

They said Bitcoin will rise “in a gradual, sustained manner” — marking a shift from its boom-and-bust past.

Supply crunches

Miners currently create about 900 new Bitcoin per day, worth about $65 million using today’s price.

The halving, estimated to occur on April 20, will cut distribution in half, which Coinbase said sets the stage for “market tightness” in the near term.

Another source of tight conditions is ETF inflows, which have outpaced the new Bitcoin supply generated by miners. Net flows hit over $1 billion on Tuesday, according to an X post by Bloomberg Intelligence analyst Eric Balchunas.

Coinbase analysts say ETFs gobbling up Bitcoin flows will make this time different.

The analysts said liquidity presented the “main setback” to rising prices after previous halvings. When large market participants exited long positions around former halvings, they drove sell-offs that crashed Bitcoin’s price.

But this cycle, the jump in market liquidity brought by ETFs has a chance of smoothing things out, Coinbase said. The ETFs generate between $4 billion to $5 billion in daily spot-trading volumes, which makes “liquidity sufficiently large for institutions to trade” without causing price crashes.

Bitcoin ETFs are “reshaping Bitcoin’s market dynamics by establishing a new anchor for BTC demand,” according to Coinbase.

Coinbase said the constant demand from ETFs “could be positive for Bitcoin’s price over the long-run by creating a more balanced market with less volatility from concentrated selling.”

While prior halvings ushered highly volatile Bitcoin rallies, Coinbase urged caution when making comparisons, noting that the past three halvings weren’t enough of a sample to make accurate predictions.

Bitcoin’s performance in earlier halvings was “most likely context dependent,” Coinbase said, citing macroeconomic events such as Brexit in 2016 and the COVID-19 pandemic in 2020 as catalysts.

Crypto market movers

• Bitcoin is up 3%, trading around $73,000.
• Ethereum is flat at about $4,000.

What we’re reading

• Stablecoin supply jumps to $146bn, biggest since FTX collapse — DL News
• Binance Reveals Extensive Cooperation With Nigerian Authorities Amid Turmoil — Milk Road
• Crypto Enthusiasts Raise Nearly $690,000 to Put Dogwifhat Meme on Las Vegas Sphere — Unchained
• Biden’s 30% tax would ‘destroy’ Bitcoin mining in the US, industry says — DL News

Tyler Pearson is a markets correspondent at DL News. He is based out of Alberta, Canada. Got a tip? Reach out at ty@dlnews.com.