Bitcoin (BTC) has become an unstoppable force in the market, continuously reducing new supply while experiencing a surge in demand from both retail and institutional investors. The recent approval of spot Bitcoin exchange-traded funds (ETFs) in the United States, the largest global equity market, has further driven up demand for the cryptocurrency. With the upcoming Bitcoin halving event, this demand side may be pushed into overdrive.
The speculation surrounding Bitcoin’s future highs and lows is a hot topic in the cryptoverse. The growth of the blockchain and decentralized finance industry is also influenced by regulations and macro factors. However, amidst all the possibilities and probabilities, Bitcoin remains constant, steadily progressing with its halving event occurring every 210,000 blocks.
The halving event reduces Bitcoin miners’ rewards by half, maintaining a deflationary issuance schedule. The predictability of the halving provides comfort to those who have experienced previous Bitcoin cycles. The halving is programmed to decrease the supply of Bitcoin, following the law of supply and demand.
Satoshi Nakamoto, the creator of Bitcoin, understood the economic principles at play. While he ensured a reduction in supply through the halving, the demand side was left to the free market. Since Bitcoin’s inception, its price has seen periods of discovery and retracement, influenced by macroeconomic factors such as interest rates.
Low interest rates have encouraged speculation on riskier assets, including Bitcoin. However, with the U.S. Federal Reserve raising interest rates, Bitcoin’s price has experienced both positive and negative shocks. Despite the impact of interest rates, other factors, such as the idea that Bitcoin is a hedge against inflation and a store of value, have trumped the influence of interest rates on its price.
The Bitcoin halving event contributes to the narrative that Bitcoin is a hedge against inflation and a store of value. The deflationary aspect of regular halvings supports this narrative, which is further promoted by investment experts. However, the halving event does not address the question of demand. The value of Bitcoin in fiat terms will increase if demand remains the same while supply decreases.
The introduction of Bitcoin exchange-traded funds (ETFs) has attracted increased interest from traditional financial institutions. Some believe that this institutional adoption will lead to a Bitcoin Supercycle, with continuously rising prices due to increased demand. However, others argue that the adoption of Bitcoin by the masses, rather than institutions, will be the primary force driving its utility and stability.
Equilibrium in economics is constantly in motion, as seen in the price action of Bitcoin. The halving cycle provides a predictable reduction in supply, making Bitcoin a deflationary asset. The variable in the equation is the demand narrative, which can be influenced by various factors. As long as demand remains constant, Bitcoin’s fiat value is likely to continue climbing in future cycles.
Bitcoin recently reached a new all-time high of $73,900 before the halving event. However, factoring in inflation, the actual ATH is around $79,000 today. The institutional adoption of Bitcoin may bring stability to its purchasing power, but without widespread usage and utility, price discovery will continue as before. The only certainty in the Bitcoin ecosystem is the halving event.
Disclaimer: This article does not provide investment advice. Readers should conduct their own research and make their own investment decisions. The views expressed in this article are solely those of the author and do not necessarily represent the views of Cointelegraph.