Guest blog by Nathaniel Whittemore (NLW)
NLW is the host of Coindesk. breakdown – The fastest growing podcast in the cryptocurrency space. Whittemore was a VC at Learn Capital and was on the founding team at Change.org.
The views and opinions expressed in this article are those of the author and do not necessarily represent the views or opinions of Kraken or its employees.
Each Bitcoin halving is the same in that they all halve the block mining reward. This common dynamic has led to similar patterns of BTC trading following past halvings.
Nonetheless, the current story surrounding Bitcoin, along with the structural forces driving the BTC market, is unique this time around.
Growing consensus: Bitcoin is here to stay
Before all previous halvings, the main question was whether Bitcoin would survive. If there had been a previous upward cycle, was it a coincidence? Was the last all-time high just a speculative frenzy before falling to zero? Broadly speaking, there is a consensus across financial markets that Bitcoin will remain an asset class.
Following SEC approval, several Wall Street firms are now offering Bitcoin ETFs. A global regulatory regime is in place. The Bitcoin network has been securing value as a cryptocurrency for 15 years, and Kraken is celebrating its 12th anniversary.
This is an industry built on solid foundations. The market is beginning to understand that Bitcoin is a permanent technological advancement, an irreversible monetary innovation.
Tradfi inflows have begun
As credibility increased, so did institutional trust and understanding. Hedge funds and asset managers are not surprised by the halving. There was little interest in Bitcoin until Paul Tudor Jones praised it during the last halving in May 2020.
The legendary hedge fund manager warned of currency depreciation and called Bitcoin “the fastest horse in the race.” That was a week before the last halving.
The ensuing bull market started off enthusiastically but relatively slowly. It took six months for Bitcoin to double after the halving. Traditional investors have publicly scoffed at the idea of adding Bitcoin to a diversified portfolio.
Ahead of this halving, institutional investors are pouring billions of dollars into Bitcoin, especially with the launch of 11 BTC ETFs. They are not waiting until the halving is over to see if Bitcoin is real. Quotas are being purchased as expected. Incorporating Bitcoin into corporate balance sheets is no longer a strange gimmick; it has now become a viable financial strategy.
First halving near record high
The biggest reason this halving is different is the price of Bitcoin. Bitcoin is already up 300% from its sub-$16,000 price in November 2022 at the height of the cryptocurrency winter.* We are heading into a halving near all-time highs. This is a level that has never been matched to a half-life before. Not even close.
Following the previous two halvings, it took Bitcoin seven months to reach a new all-time high. The halving itself was unexpected. Bitcoin remained stubbornly stagnant each time, leaving everyone wondering if another bull market was coming. This time, Bitcoin has already been on the rise for several months.
Pivotal Milestone: New Bitcoin Supply Shorter than Gold
Each halving has a much smaller impact on the Bitcoin market in terms of supply reduction than the previous halving. When Bitcoin experienced its first halving in 2012, less than half of the Bitcoin supply had been mined. The block reward was reduced from 50 Bitcoins to 25 Bitcoins. Bitcoin went from 25% of its annual supply to 12.5% overnight.
During this halving, most of the Bitcoin that will ever exist has already been produced. It adds only 1.7% per year to the overall Bitcoin supply. However, reducing this rate to 0.85% is a watershed event. This is because now a higher percentage of gold will be added to the total gold supply each year than Bitcoin will be added to the Bitcoin supply.
Each year, new gold mined adds more than 1% to the total gold supply (plus 3% in 2023). So even gold, once the global standard for store of value due to its scarcity, joins a long, long list of assets showing more value-diluting supply inflation compared to Bitcoin. No other asset, no asset, has a perfectly finite supply. There will be no more than 21 million Bitcoins.
In the markets, this time is little different. This time it’s different.
For the first time before the halving, Bitcoin became widely available through ETFs and is increasingly accepted as a new, permanent asset class. Traditional finance is just starting to buy Bitcoin. Bitcoin’s market capitalization trades at a tiny fraction of gold’s (about 8%). Even though it is clearly a superior store of value. The new supply added to existing Bitcoin each year will be reduced to a minuscule 0.85%.
As we enter an era where $300 trillion of professionally managed Tradfi AUM begins to adopt Bitcoin as a perpetual asset class – with newly minted supply dwindling to zero – it’s hard to believe we’re that much closer to Bitcoin’s beginnings. There is every reason to do so. Bitcoin revolution than the end.
*Past performance is not a reliable indicator of future results.
Investing in crypto assets is risky and each token may have its own unique risks. Below is a list of risks that generally apply to all cryptocurrency assets.
Volatility: The performance of crypto assets is highly volatile and can fall in value as quickly as they rise. You should be prepared to lose all the money you have invested in cryptocurrency assets.
Lack of protection: Investing in cryptocurrency assets is unregulated and neither the Financial Services Compensation Scheme (FSCS) nor the Financial Ombudsman Service (FOS) will assist or protect you if something goes wrong with your cryptocurrency asset investments.
Liquidity: Due to low liquidity in some cryptocurrency asset markets, you may not be able to buy or sell cryptocurrency assets at the price you want or expect.
Complexity: Certain cryptocurrency assets may involve certain complex risks that may be difficult to understand. Do your own research, and if it seems too good to be true, it probably is.
Don’t put all your eggs in one basket. Putting all your money into one type of investment is risky. By spreading your money across a variety of investments, you will be less dependent on others to perform well.