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Will Bitcoin Halving Create Millionaires Overnight?
Now that the euphoria around the new commercial begins Bitcoin (CRYPTO:BTC) Exchange Traded Funds (ETFs) have started to fade away, it’s time to move on to the next major catalyst for Bitcoin: The April halving event. According to a growing number of analysts, this could really send its price skyrocketing.
Indeed, according to the issuer of the Bitcoin ETF Greyscale (NYSEMKT:GBTC), the impact of this halving could surpass any of Bitcoin’s three previous halvings. But is it really like that? There are three main reasons why this event could end up disappointing cryptocurrency investors.
1. Buy the rumor, sell the news
As we saw with the Spot Bitcoin ETF, the market is getting much smarter at setting prices based on the impact of each new Bitcoin event. If you subscribe to the efficient markets hypothesis, which states that the market efficiently prices new information about any asset, then this is exactly what you would expect.
In the case of Bitcoin ETFs, the market had a good grip on when they were due to arrive, as well as which companies were likely to gain Securities and Exchange Commission (SEC) approval. So it was no surprise when the SEC finally approved spot Bitcoin ETFs on January 10th.
The market had already priced in the effects of this move. In the six months from June 2023 to January 2024, the price of Bitcoin skyrocketed. Therefore, when the news finally broke, Bitcoin prices actually went down, not higher, as many people had thought. As it turned out, preliminary earnings were a little too optimistic in the near term.
So, could the same thing happen again, this time with the halving? At the end of last year, some analysts were already starting to predict that some of the impact of the halving had already been priced in. This makes sense, given the attention Bitcoin is now receiving from Wall Street and large institutional investors.
The halving is no longer a surprise event for them, as it might have been in 2012, 2016 or even 2020. It is a highly predictable thing with several cycles of historical precedent. And the cryptocurrency market is no longer as inefficient as it was just a few years ago.
2. Correlation does not imply causation
Within the Grayscale Bitcoin halving report, one of the most interesting sections was the analysis of the overall macroeconomic situation during the period of each halving.
The 2012, 2016, and 2020 halving events aligned with major macroeconomic events that may have had much more to do with Bitcoin’s price surge than the halving itself.
Image source: Getty Images.
Take the May 2020 halving for example. The market was dealing with the shock of the pandemic, and a new wave of monetary stimulus from the government helped support investment markets. Some people took their stimulus checks and put them all into cryptocurrency. So when Bitcoin finally hit an all-time high in November 2021, was it due to the halving or the broader macroeconomic situation?
The story continues
All of this is to say that investors could fall into the correlation/causality trap. They see three distinct periods where Bitcoin has rallied and the natural assumption is that there must be some sort of causality going on. Maybe there isn’t.
3. Past performance is no guarantee of future results
Finally, just because Bitcoin has rallied three times after three halvings doesn’t mean it will happen again, just like clockwork. It’s like flipping a coin three times, getting heads each time, and assuming there’s a greater than 50% chance of heads on the fourth toss.
And remember: Bitcoin is expected to undergo halving cycles every four years from now until 2140. Does anyone really think that Bitcoin will reach a new all-time high in each of the next 30 halving cycles? At some point, the effect will probably wear off.
Of course, Grayscale makes several noteworthy points in its Bitcoin halving report. For example, new Bitcoin spot ETFs are said to be a factor that never existed in previous halving cycles. This is important because demand for Bitcoin from these ETFs should absorb any selling pressure that may occur from Bitcoin miners following the halving.
Don’t expect the price of Bitcoin to skyrocket overnight
Even if you think the halving will have a significant impact on the price of Bitcoin, just remember that price gains after a halving usually take 12 to 18 months. Consider the past halving: It occurred in May 2020, but Bitcoin didn’t reach its all-time high of $69,000 until November 2021, a full 18 months later. As a result, don’t expect a sudden jump in Bitcoin’s price from its current level of around $50,000.
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Domenico Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
Will Bitcoin Halving Create Millionaires Overnight? was originally published by The Motley Fool