Bitcoin ETFs' Potential to Soften Price Retracement During 2024 Halving
Summary:
The upcoming Bitcoin halving event, scheduled for April 2024, could potentially experience softened price retracement due to the surge in Bitcoin exchange-traded funds (ETFs) promoting massive institutional investment. This current integration of Bitcoin ETFs could lead to a substantial rise in demand for the cryptocurrency, which, according to some market observers, may serve as a buffer against falling prices during the retracement. However, protests from other experts argue that these inflows may not continue positively, possibly amplifying anticipated price drops during the halving. Yet, in the ever-unpredictable crypto market, the final impact remains to be seen.
The once-every-four years halving event of Bitcoin, which traditionally results in a decrease in price, is drawing near. This time, however, experts are questioning if the boom in Bitcoin exchange-traded funds (ETFs), which is encouraging massive institutional investment into Bitcoin, may ease the usual price contraction. The upcoming halving event, set to occur in April 2024, is the fourth in Bitcoin's history. The process will reduce the provision of new Bitcoin, boosting its rareness.
As explained by cryptocurrency analysis firm Rekt Capital, the halving event consists of five stages. The initial stage, the pre-halving downside, is characterized by decreases in price as investors anticipate the event. The next phase, the pre-halving rally, leads to significant price jumps due to investors' hope to take advantage of the halving hype.
Currently, many believe that Bitcoin has reached the third stage, known as the pre-halving retracement. This stage typically witnesses a drop in prices as a result of investors expecting an increase in selling pressure and consequently trying to cut their losses. Here, it is expected that Bitcoin ETFs will play an important role. The fourth phase, or reaccumulation, takes place following the halving and can last up to five months. During this stage, the hype reduces and many investors abandon their positions after becoming disillusioned by the stagnant prices. However, this stage ultimately leads to the parabolic uptrend, or the fifth stage of the halving, during which the Bitcoin's price goes up, potentially hitting a new all-time high.
Early this year, the U.S Securities and Exchange Commission gave eleven Bitcoin ETFs the green light to be listed and traded on registered conventional exchanges. This groundbreaking decision caused skeptical traditional investors to integrate Bitcoin into their portfolios, enhancing the overall demand for this leading cryptocurrency.
Recent data indicates a substantial demand for Bitcoin ETFs which cannot be overlooked. On March 4, globally traded products including Bitcoin ETFs surpassed 1 million in assets under management. The combined trading volume of Bitcoin ETF products hit a record high of $10 billion on March 5, representing a high since its inception earlier in January. Compared to the significant outflows from gold and other ETF products during this same period, it can be suggested that there's a possible investment shift towards Bitcoin ETFs.
The increasing demand for Bitcoin from traditional investors is previously unprecedented. Bullish market experts predict the inflows through Bitcoin ETFs will serve as a buffer against price falls during the retracement. According to Michael Saylor, CEO of MicroStrategy, the approval of spot ETFs may prompt a demand shock in the market, followed by a supply shock in April.
Bitcoin ETFs and the halving process are connected during the third and fourth stages. This usually means falling Bitcoin prices as short-term investors exit the market. The anticipated retreat also leads miners to sell their Bitcoin holdings before their rewards drop by half. This results in a decline in demand. However, incorporations of Bitcoin ETFs are expected to provide adequate support to combat the falling prices and construct a solid foundation for the parabolic uptrend that follows.
Narratively opposing, some experts dismiss the notion that the inflows via Bitcoin ETFs can create this once-in-a-lifetime opportunity during the 2024 halving. Nicholas Sciberras, a senior analyst at Collective Shift, argues that while Bitcoin ETFs might draw in enough inflow to serve as a hedge against selling pressure, they could also amplify the anticipated price drops of the halving if the demand for Bitcoin ETFs doesn't continue as positively as it does currently.
A bearish scenario is additionally predicted by JPMorgan, which suggests that Bitcoin could dip as low as $42,000 following the halving. It is also interesting to note that since its launch in January, Grayscale Investments has observed considerable outflows from its Grayscale Bitcoin Trust ETF, amounting to billions of dollars in January alone. This could just be related to Grayscale's Bitcoin ETF, indicating it might not meet the expectations or needs of investors.
Eric Balchunas, Senior Bloomberg ETF analyst, remarks that the ETF buyers aren't that into Bitcoin's mission. However, he advises not overlooking their ability to maintain a hold, no matter how high or low it goes.
Lastly, it's critical to note that nothing in the crypto market can be predicted with 100% certainty. There is less than a month to the halving, and given the performance of the Bitcoin ETFs, a bearish scenario appears unlikely. With most expecting Bitcoin ETFs to benefit from some stages of the halving, only time will tell to what extent they will influence these stages, if any.
Published At
3/25/2024 5:14:00 PM
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