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As we find ourselves in the midst of Macro Crypto Summer, it's crucial to understand the underlying dynamics driving this phenomenon. This unique phase in the crypto cycle, characterized by rising liquidity and economic growth, has significant implications for both traditional markets and the cryptocurrency space. Join me, Colin Gilson, as we unpack the intricacies of Macro Crypto Summer and explore its impact on Bitcoin and the broader crypto market.

The hallmark event of this phase is the Bitcoin halving, intriguingly synchronized with the liquidity cycles seen in traditional finance. Is this mere coincidence?

Bitcoin, the best performing asset ever

Let's pause for a moment to compare Bitcoin's performance over the past four-year cycles with that of other investment avenues.

As evident from the data, Bitcoin moves in cycles and isn't shy about its volatility. What's gripping is that Bitcoin isn't just any asset—it's the best-performing one ever, clocking in at a jaw-dropping 124% annualized return!

Another intriguing observation from the graph is the trend of diminishing returns in the years following each halving event, with returns dropping from 5516% to 1300% and then to 302% (highlighted in red).

Additionally, a fascinating pattern emerges: Bitcoin tends to experience three years of growth followed by a bearish year. Given the significant downturn in 2022, this pattern suggests the potential for two more years of substantial growth if history is any indicator. However, it's crucial to remember that past performance is not necessarily indicative of future results.

The diminishing returns

Below is a graph illustrating Bitcoin's diminishing returns in action. This can be attributed to the increasing difficulty of significantly impacting Bitcoin's market value. For instance, if Bitcoin's market cap was 100 and you invested 1€, Bitcoin would see a 1% increase. However, with a market cap of 200, the same investment would only result in a 0.5% movement.

Bitcoin’s Price Performance Since Cycle Low

Bitcoin has undergone four distinct cycles, each encompassing both bullish and bearish markets. The chart above illustrates how the ongoing market cycle, initiated in 2022, stacks up against its predecessors.

During this current cycle, BTC has surged by over 400% in just 17 months since hitting its cycle low.Interestingly, the current cycle bears the closest resemblance to the 2018-2022 cycle, which concluded with BTC soaring by 1,000% within 24 months after reaching its low point. This resemblance can be seen in the chart below. This similarity is evident in the chart provided below. However, one can't help but wonder: what if the COVID-19 pandemic had never occurred? Could BTC have surged even higher, and are we simply witnessing a "normal" cycle? It's impossible to say for sure.

ETFs a game changer ?

The question arises as to whether this cycle will deviate from the norm, especially with Wall Street joining the fray (see our newsletter on ETFs: Riding the Bitcoin ETF Wave: Navigating the Crypto Investment Landscape).

ETFs have garnered unprecedented popularity, becoming the most sought-after ETFs in BlackRock's history.

The chart below depicts the ETF volume since their approval by the SEC. Already, this cycle shows distinctiveness; we've never before hit an all-time high before the halving. What's even more intriguing is that historically, reaching an all-time high meant that even your local baker would be discussing Bitcoin. This time around? It seems to have gone unnoticed. Why is that? Likely because this surge has been predominantly fueled by Wall Street investors.

This metric showcases the most recent balances of the top ten Bitcoin ETFs traded in the US, typically reflecting asset holdings as of the previous trading day's close. As of March 31, 2024, spot Bitcoin ETFs have amassed nearly $60 billion in assets.

For those not acquainted, GBTC, originally the Grayscale Bitcoin Trust, has now transitioned into an ETF and is gradually bleeding into BlackRock’s ETF. Before the approval of ETFs, this fund was a primary avenue for institutions to gain exposure to BTC without direct ownership. In the graph below, BlackRock's ETF stands out, marked in yellow, as the top-performing among them.

What is the Halving ?

Having mentioned the term "halving" multiple times throughout this article, you might be wondering: what exactly is Bitcoin halving?

The Bitcoin halving is an event that occurs approximately every four years, and it's a critical aspect of Bitcoin's monetary policy. This event has a significant impact on the supply and, consequently, the price of Bitcoin. For investors and enthusiasts alike, understanding the Bitcoin halving is crucial to grasp the dynamics of the cryptocurrency market.

Disinflation in action

The Bitcoin halving is a pre-programmed event embedded in Bitcoin's protocol, designed to occur every 210,000 blocks, roughly every four years. During this event, the reward that miners receive for validating transactions and securing the network is halved. Initially set at 50 Bitcoins per block, the reward is reduced by half, first to 25 Bitcoins, then to 12.5, and so on.

The upcoming Halving will be the fourth in Bitcoin’s history, and when it takes effect miners’ block rewards will drop from 6.25 BTC to 3.125 BTC. The fourth Bitcoin Halving will happen around April 19, 2024. Halvings will continue to take place on the same schedule until all 21 million bitcoin have been mined, around the year 2140. The fixed Halving schedule affords bitcoin its unique status as a programmatically disinflationary asset.

Why Does the Bitcoin Halving Matter?

Supply and Demand Dynamics

Bitcoin operates on a fixed supply schedule, with a maximum limit of 21 million Bitcoins that can ever be mined. The halving plays a crucial role in controlling the rate at which new Bitcoins are introduced into circulation. By reducing the block reward, the halving event decreases the rate of supply growth, making Bitcoin increasingly scarce over time. This scarcity is a key factor driving Bitcoin's value, as limited supply coupled with growing demand often leads to price appreciation.

Mining Economics

The halving event also has a direct impact on the economics of Bitcoin mining. As the block reward is reduced, miners's revenues decrease unless the price of Bitcoin compensates for the reduced reward. This can lead to increased competition among miners, driving up operational costs and potentially forcing less efficient miners out of the market. Ultimately, the halving acts as a mechanism to maintain the security and decentralization of the Bitcoin network by incentivizing miners to continue validating transactions despite lower rewards.

Potential Implications for Investors

Price Volatility

Historically, the Bitcoin halving has been associated with increased price volatility. In the months leading up to and following the halving event, Bitcoin's price often experiences significant fluctuations, as investors speculate on the potential impact of reduced supply on demand dynamics. While past performance is not indicative of future results, investors should be prepared for heightened volatility and exercise caution when trading around the halving period.

Long-Term Investment Perspective

Despite short-term volatility, many analysts and investors view the Bitcoin halving as a bullish long-term catalyst for Bitcoin's price. The reduced supply growth and increased scarcity resulting from the halving are generally seen as positive factors that could drive sustained price appreciation over time. As always, investors should conduct thorough research and consider their risk tolerance before making investment decisions.

In short ?

The Bitcoin halving is a significant event that plays a pivotal role in shaping the supply, demand, and economics of Bitcoin. Understanding the mechanics and implications of the halving can provide valuable insights for investors navigating the dynamic cryptocurrency market. While the halving event may bring increased volatility, many investors remain optimistic about Bitcoin's long-term prospects, driven by its unique properties as a decentralized, scarce, and increasingly adopted digital asset.

As we delve deeper into the complexities of the Bitcoin halving and its implications for the crypto market, your insights and perspectives are invaluable. I invite you to share your thoughts, questions, or predictions about the upcoming Bitcoin halving and its potential impact on the market. Have you adjusted your investment strategy in anticipation of this event? What are your thoughts on Wall Street's increasing involvement in the crypto space? Let's continue this conversation in the comments below and don't forget to share this article with your network to spark further discussion and insights!

Comprendre le halving du bitcoin : Dévoiler les secrets de l'événement le plus important de en crypto