Bitcoin halving has always been a bull market catalyst that the market has been talking about, but the latest report from Coinbase shows that historically halving is usually accompanied by some important historical monetary and fiscal policies. Against the backdrop of the recent decline in liquidity, it remains to be seen whether it can have a positive impact on BTC.
The fourth Bitcoin halving is less than 300 days away, becoming an important event for many investors in recent times, as it has historically helped to become a catalyst for a new round of bull runs. (Learn more about What is Bitcoin Halving?)
But a new report released by cryptocurrency exchange Coinbase last week showed that since there have only been three halvings in Bitcoin’s history, actual evidence of whether it can actually bring a positive impact to the BTC market remains unclear.
Bitcoin is affected by many external factors at the same time
We know that every four years or so, Bitcoin's miner rewards are reduced to half of their previous value. The next halving is expected to occur between April and May 2024, which will reduce BTC's block reward from 6.25 BTC per block to 3.125 BTC.
Although the market generally believes that the increased scarcity of BTC will help increase the price of the currency, the author of the report, David Duong, summarized the background of the past three halvings of Bitcoin, pointing out that the Bitcoin halving events happened to coincide with some important historical monetary and fiscal policies:
In 2012, the Fed began purchasing mortgage-backed securities and long-term Treasury bonds for its third round of quantitative easing (QE3).
In the second half of 2016, Brexit sparked fiscal concerns in both the EU and the UK, leading to an increase in BTC purchases.
In 2020, central banks and governments responded to the COVID-19 pandemic with unprecedented fiscal stimulus, which pushed up global liquidity.
Therefore, he believes that in addition to paying attention to the supply and demand dynamics of BTC, investors must also have a clear understanding of the market background and need to understand the impact of the US dollar trend, interest rates and global liquidity.
With the exception of the third halving, the evidence from these halving events supporting Bitcoin’s price action is not entirely clear-cut.
Recent decline in market liquidity
Duong also pointed out that liquidity has generally declined across all asset classes in recent weeks, partly due to a 3.5% drop in global central bank balance sheet holdings over the past two months.
Across the Federal Reserve, the European Central Bank, the People’s Bank of China, the Bank of Japan, the Bank of Canada and the Bank of England, tightening conditions have reduced a broad measure of global liquidity to $29.2 trillion as of the end of May.
Global liquidity peaked at nearly $33.1 trillion in mid-February 2022, fell by $3.8 trillion by the end of 2022, and then recovered in the first quarter of 2023.
Generally speaking, reduced liquidity will have a negative impact on asset prices and increase volatility.
summary
Overall, Duong does not deny that the next Bitcoin halving may have a positive impact on the price performance of the currency, but the limited evidence cannot fully support the argument. He believes that we have not seen a clear pattern fully emerge, especially because previous events have been affected by factors such as global liquidity.
Looking ahead, as global liquidity appears to have peaked in the short term, the impact of the next halving on future Bitcoin price behavior remains to be seen.