Bitcoin’s fourth mining reward halving is imminent, occurring in just two days. This event, which happens every four years, will decrease the amount of Bitcoin emitted per block from 6.25 BTC to 3.125 BTC, effectively cutting the rate of new supply in half.
Historically, previous halvings have been followed by significant price rallies in BTC, leading many in the crypto community to believe that history will repeat itself.
However, investment banking giant Goldman Sachs has advised caution to its clients regarding relying too heavily on past halving cycles for price predictions.
In a note to clients on April 12, Goldman’s Fixed Income, Currencies, and Commodities (FICC) and Equities team pointed out that while previous halvings have indeed been accompanied by BTC price appreciation, the time taken to reach all-time highs varied greatly.
They emphasized the importance of considering the prevailing macroeconomic conditions when assessing the impact of halving events.
The chart depicts how Bitcoin has performed following its previous halving events on November 28, 2012, July 9, 2016, and May 11, 2020. Although bullish sentiment prevailed following each halving, the magnitude and timing of the eventual peak differed significantly.
Notably, the macroeconomic environment during previous halving events differed from the current landscape of high inflation and interest rates. Back then, major central banks saw rapid growth in the M2 money supply, while interest rates remained at or below zero in many advanced economies, encouraging risk-taking across financial markets, including cryptocurrencies.
For history to repeat itself, supportive macro conditions are crucial. However, the current scenario differs significantly. Interest rates in the U.S., the world’s largest economy, stand above 5%, and market expectations of rate cuts this year have diminished due to persistent inflation and a resilient economy.
Despite these differences, the bitcoin price has surged 50% this year, reaching record highs well before the halving, driven by inflows into U.S.-based spot exchange-traded funds (ETFs). Bloomberg reports that the 11 spot-based ETFs, launched three months ago, have amassed $59.2 billion in assets under management, creating a demand-supply imbalance.
Some analysts believe that much of the typical post-halving surge has already occurred, potentially paving the way for a sell-the-fact pullback after the April 20 halving.
Goldman views Bitcoin’s halving as a “psychological cue to investors about its limited supply,” and suggests that the medium-term outlook hinges on the adoption of ETFs.
They argue that whether the halving event next week leads to a “buy the rumor, sell the news” situation is less impactful on BTC’s medium-term outlook, as price performance is likely to continue being driven by supply-demand dynamics and demand for BTC ETFs.
