Bitcoin Halving: Shift in Market Behavior Paves Way for Stable Returns
Summary:
The impending Bitcoin (BTC) halving has stirred excitement among crypto investors and the media. Traditionally connected with high volatility, the halving period might exhibit a different trading behavior this time due to the variable introduced by the spot Bitcoin ETF. Long-term BTC holders are now dominating the market, leaving the routine retail traders behind. Investors looking to profit from the halving event might need to adopt a more conventional equity investment approach. The possibility of 600% returns after the halving, as seen in 2020, seems minimal; however, the expected outcome could be a more stable, predictable return on investment.
Bitcoin's (BTC) halving is just around the corner, sparking a flurry of discussion among crypto investors and media. Yet, the current market conditions suggest a change in trading strategies. Historically, the halving comes with a surge in volatility, causing a 30%-40% sell-off followed by a skyrocketing increase to record highs within an average of 480 days. However, the introduction of the spot Bitcoin ETF has shifted the dynamics.
Analysts are now focusing on Bitcoin's volatility to predict its future price. Pre-halving drawdowns over the past few months have been smaller than average, with the most recent drop coming in at around 15%. BTC bounced back swiftly, nearly reaching $70,000. This suggests a more restrained rally following the halving event.
There are two main driving forces behind these subtle shifts. First, the number of long-term Bitcoin holders has soared to about 14 million BTC, over 70% of the total supply. This increase is largely due to the rise in holders shifting BTC from exchanges to cold wallets in a move known as the "diamond hands" approach.
More critically, however, is the introduction of the spot Bitcoin ETF. Presently, ETFs are absorbing more BTC supply than what miners can deliver. Roughly 10,000 BTC are being taken in daily by spot BTC ETFs while only 900 new BTC are produced. This discrepancy has amplified the scarcity effect, causing prices to rise.
The arrival of the spot Bitcoin ETF also indicates a significant decrease in long-term volatility. As a result, ETF investors who adopt more a long-term investment mindset have superseded the influence of regular crypto traders. Present data shows that the 30-day historical BTC/USD volatility has slipped from almost 18% in April 2013 to approximately 4%.
These shifts in investment behavior are reflecting a transformation in the Bitcoin market. Individuals and institutions that have previously funneled trillions into S&P 500 ETFs are now moving into spot Bitcoin ETFs with a long-term outlook. Their investment decisions are driven by longer-term factors, such as macroeconomic conditions and structural market changes.
For investors looking to cash in on the halving, they'll need to take on a more traditional equity investor mindset. This includes watching out for changes in the assets under management of spot Bitcoin ETFs and keeping a close eye on the actions of long-term holders. The 600% returns seen after 2020's halving are unlikely. However, the benefit may well be more consistent and predictable returns, contributing to more balanced portfolios.
Lucas Kiely, chief investment officer for Yield App, cogently notes that these shifts in market dynamics could prove much more attractive to investors seeking a balance between risk and reward. Kiely has an extensive background in investment, having held several prominent positions in Credit Suisse and Diginex Asset Management.
Published At
4/7/2024 11:53:59 PM
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