Bitcoin’s highly anticipated halving event is just a few weeks away, and the recent frenzy surrounding ETFs has accelerated its arrival. As a result, the market dynamics have shifted, requiring different trading strategies to navigate this new landscape.
In previous halving cycles, we witnessed a significant spike in volatility. Typically, there would be a sell-off of 30% to 40%, followed by a rapid surge to a new all-time high within an average of 480 days after the halving. However, this time, the introduction of the spot Bitcoin ETF has changed everything.
To understand the future price movements of Bitcoin, it’s crucial to closely examine its volatility. In recent months, we have seen anticipated price corrections leading up to the halving. However, these corrections have been relatively mild compared to previous cycles, with declines not exceeding 25%. The recent drawdown was only around 15% before Bitcoin bounced back towards the $70,000 mark.
This more subdued sell-off indicates that we can expect a less explosive rally after the halving. While a sell-off and a new all-time high are still anticipated, the price increases are unlikely to reach the staggering 600% seen after the last halving in 2020. Those days of astronomical gains may be behind us.
There are two factors contributing to this shift in market behavior. Firstly, the percentage of long-term Bitcoin holders has reached a record high, with approximately 14 million BTC, or over 70% of the total circulating supply, held by these investors. Many holders have adopted a “diamond hands” approach, withdrawing record amounts of BTC from exchanges and storing them in cold wallets.
The second factor is the arrival of spot Bitcoin ETFs, which are absorbing more BTC supply from the market than miners can generate. On average, these ETFs have been acquiring around 10,000 BTC per day since their launch, while miners are producing only 900 new BTC daily. This scarcity is driving prices upward.
However, the influx of long-term investors through ETFs has also led to a significant decrease in long-term volatility. These investors have a different mindset compared to typical crypto traders, focusing on long-term drivers and investment horizons of at least three years. As a result, the recent spike in volatility leading up to the halving remains relatively low compared to previous cycles.
To profit from the halving, investors will need to adopt a more traditional equity investor mindset rather than relying on risky crypto trading strategies. They should monitor the assets under management of spot Bitcoin ETFs, similar to tracking traditional funds using providers like Morningstar. Additionally, paying attention to the actions of long-term holders, who are now in control, is crucial.
While the potential for massive returns may be diminished after the halving, investors can expect steadier and more reliable returns that align with a typical balanced portfolio. For most investors, this prospect is far more appealing than dealing with the extreme volatility associated with an asset that has a 50/50 chance of soaring or disappearing.
In conclusion, the arrival of spot Bitcoin ETFs has reshaped the market dynamics surrounding the halving event. Investors must adjust their strategies to align with the behavior of long-term holders and the more stable returns offered in this new landscape.