The fourth Bitcoin Halving is now a little over a month away. As with all prior halvings, it will reduce bitcoin issuance rewards for miners by half – this time from 6.25 BTC to 3.125 BTC per block. Although studying past halving cycles can offer some insight into bitcoin’s potential price action, such studies of previous cycles should be interpreted cautiously, as the small sample size makes it difficult to generalize patterns.

Moreover, we believe that bitcoin’s market dynamics have fundamentally changed with the advent of US spot BTC ETFs. As a result, bitcoin’s response to the upcoming halving may not necessarily mirror its performance in prior cycles:

▶ ETFs now represent around $4-5B in average daily BTC spot volumes (or 15-20% of the total across centralized exchanges globally), making liquidity sufficiently large for institutions to trade in this space. ▶ US spot bitcoin ETFs have attracted $9.6B of net inflows in their first two months with total assets under management amounting to $55B. ▶ If we look at all spot bitcoin ETFs globally (not just US funds), these regulated investment vehicles currently hold around 1.1M bitcoin or 5.8% of total circulating supply.

Meanwhile, restrictions in new bitcoin supply are just one factor to consider, albeit an important one: ▶ Bitcoin available to trade has been in decline (from 5.3M BTC to 4.6M BTC) since early 2020, a major shift from previous cycles. ▶ But recent data suggests that there has been a substantive 1.3M increase in active BTC (that has moved within the past 3 months) since early 4Q23, compared to only ~150k new BTC mined during that time. ▶ Miners selling reserves for liquidity is only one part of that story (in fact, the net balance in miner wallets has only decreased by 20,471 BTC between October 1, 2023 and March 11, 2024).

That means the lion’s share of newly active BTC supply is coming from elsewhere. Still, Glassnode data indicates that exchanges’ bitcoin balances have dropped this year by a net 80k BTC, even as the bitcoin transfer volumes into exchanges have doubled.

In our view, the market is better positioned than in the past to absorb upcoming sources of supply, but we think it’s still prudent not to oversimplify the complex interplay between these market dynamics. That said, we believe the current price move is only the beginning of a longer bull run and that it will take further price appreciation in order to drive supply vs demand dynamics into balance