This Time is Different: Unprecedented Halving Forces

Exploring the 2024 Bitcoin Halving: A Deep Dive into Institutional Adoption, ETFs, and a Shifting Global Economic Landscape.

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Apr 11, 2024

The Unprecedented Convergence Shaping Bitcoin's 2024 Halving

Each Bitcoin halving event marks a pivotal moment, influencing market dynamics and investor sentiment. As seasoned observers of Bitcoin, we've witnessed the dramatic impact of previous halving’s on Bitcoin's price. However, the impending halving next week promises to be unlike any other. Not only are the internal fundamentals of Bitcoin drastically different this time, but the wider macro environment and monetary landscape is ripe for disruption.

At the heart of this shift lies the remarkable surge in institutional adoption and the advent of Bitcoin exchange-traded funds (ETFs). These institutional players, including major companies like MicroStrategy and Tether, are injecting substantial capital into the Bitcoin market, fundamentally altering its dynamics. Coupled with this influx of institutional investment is the emergence of a unique macroeconomic and geopolitical environment, characterized by deglobalization, demographic decline, and a search for alternative monetary systems. Against this backdrop, Bitcoin stands as a beacon of financial sovereignty and independence, offering a hedge against inflation, deflation, and geopolitical uncertainty.

What Characterized the Previous Halvings?

Let’s review what characterized the previous halvings, and briefly summarize why this one is different.

First Halving - Obscurity: During the first halving in 2012, Bitcoin was relatively obscure, known only to a niche group of enthusiasts. The market was unstructured, and institutional investment was virtually non-existent. The impact of the halving was strong because of the size of the reduction from 50 to 25 bitcoins per block.

Second Halving - Speculation on Altcoins: By the time of the second halving in 2016, Bitcoin had gained more visibility, and the broader Bitcoin market was being infiltrated by altcoins. Degenerate speculation dominated and institutional investors were still mostly absent.

Third Halving - Venture Capital, COVID-19 and Maturation: The third halving in 2020 coincided with the global COVID-19 pandemic, which led to unprecedented economic stimulus measures. Bitcoin’s resistance to inflation became more widely recognized. Venture capital moved into scams and token sales in a big way. This was the heyday for unregistered securities. We saw the beginnings of institutional interest and respect, however, the institutional framework was not fully developed.

Fourth Halving - Institutional Adoption and ETFs: The landscape for the 2024 halving is fundamentally different. Institutional investors are now actively participating in the Bitcoin market, not just as speculators but as major stakeholders. The advent of Bitcoin ETFs has provided a regulated pathway for institutional money, reducing barriers to entry and adding a layer of legitimacy and stability to the market. Altcoins are stagnant and the new alternatives are becoming publicly listed companies either stacking or mining bitcoin.

The Transformative Impact of Bitcoin ETFs and Institutional Adoption

The increasing involvement of institutional investors is a testament to Bitcoin's maturing appeal. Firms like MicroStrategy (MSTR) have not only invested heavily in Bitcoin but have also made it a central component of their business strategy. With over 214,000 BTC, MicroStrategy exemplifies the growing confidence in Bitcoin as a long-term store of value. Tether's strategic acquisition of 8,888 BTC quarterly underscores a similar trend, where major financial players are increasingly anchoring their reserves in Bitcoin. Metaplanet, a Japanese business, recently announced they are copying MSTR’s playbook. They are only the first to do so. This institutional buy-in is a potent indicator of Bitcoin's evolving perception from a speculative asset to a fundamental pillar of modern investment portfolios.

Bitcoin ETFs are revolutionizing how investors can engage with Bitcoin. By offering exposure within a required regulated framework, these ETFs provide the bridge for traditional investors with large pools of capital to move money into Bitcoin. With ETFs reportedly absorbing $200 million per trading day, they're redefining Bitcoin's supply-demand dynamics, especially in the context of the halving. Bitcoin is now on the radar screen of every serious money manager in the world.

A New Macroeconomic Backdrop

The macroeconomic landscape presents a stark contrast to the conditions surrounding previous halvings. This new backdrop is characterized by a series of unprecedented global challenges and shifts, which collectively create a fertile ground for Bitcoin's increased adoption and integration into the global monetary system.

The current era is marked by a palpable shift towards deglobalization, with peoples increasingly looking inwards, becoming more nationalistic and questioning the benefits of interconnectedness. For instance, the BRICS are pursuing an agenda in competition with the West and the US and China are in the midst of a trade war. This trend is reshaping international trade, investment flows, and monetary policies, creating a more fragmented and uncertain global financial landscape, not beneficial to the worn out credit-based system we have today. In such a context, Bitcoin, with its borderless and decentralized nature, offers an attractive alternative for storing and transferring value.

Many developed and even some developing countries are facing significant demographic declines. Aging populations, shrinking workforces and disappearing demand pose serious challenges to economic growth and the sustainability of current infrastructure, pension systems and the complex global economy to which we’ve become accustomed. In economies where future growth prospects are dampened by demographic trends, Bitcoin's deflationary model and potential as a store of value gain heightened relevance.

Trust in the existing financial and monetary system is being eroded by ongoing economic crises, ballooning public debts, and the unprecedented expansion of monetary bases. The entire backdrop of trust that enabled a system based on debt to flourish is being undermined. It is no longer a fringe topic to talk about fiat currencies collapsing or alternative monetary systems that are not subject to the whims of central banks and political interference.

There is no doubt that the macroeconomic and geopolitical backdrop to this bitcoin halving is much different than others. It's not just the internal dynamics of the Bitcoin market that have evolved; the global economic and financial landscape is also undergoing profound changes. These external factors, combined with Bitcoin's intrinsic properties and programmed supply shortage, set the stage for a halving event that could spark conversation about Bitcoin's future role in the monetary system.

The Halving Should be Almost Instantly Bullish

We’ve enjoyed an unprecedented pre-halving rally to new ATHs, but it wasn’t a speculative frenzy that got out of hand. It was a strong and measured move driven by fundamentals. We have also been essentially consolidating at ATHs for the past 38 days, since 4 March. This consolidation phase is significant, showcasing a market that, despite its vigorous ascent, has found a moment to stabilize and lay a solid foundation for the next phase. This cooling-off period is crucial, suggesting a market that is maturing and becoming more resilient to volatile swings, thereby setting a poised stage for the anticipated post-halving momentum.

Many people predicted bitcoin would reach $100,000 by the halving, but that would have set the stage for a nasty sell-the-news event after the halving. The market's consolidation has likely averted such a scenario. In my Bitcoin & Markets content throughout March, I emphasized the importance of this cooling off period, arguing that it was essential to temper the market's exuberance and prevent a major post-halving setback. This measured approach indicates a market that is not just reacting to hype but has radically transformed from the earlier periods into a mature asset and market.

The halving is a well-understood part of bitcoin for we bitcoiners, but it could bring up reservations for new investors. I can imagine there being some uncertainty around the halving’s effect on miners and network security. Investors might also be worried about a pullback after the halving and this huge rally that preceded it. Once the halving is over, that uncertainty begins to melt away. The lower issuance and supply crunch will force prices higher, and that effect could be almost instant.