The halving of Bitcoin has always been a popular bull market catalyst in the market, but the latest report from Coinbase shows that historically, halving is often accompanied by important historical monetary and fiscal policies. In the context of recent liquidity declines, whether it can have a positive impact on BTC remains a question mark
The halving of Bitcoin has always been a popular bull market catalyst in the market, but the latest report from Coinbase shows that historically, halving is often accompanied by important historical monetary and fiscal policies. In the context of recent liquidity declines, whether it can have a positive impact on BTC remains a question mark.
The fourth halving of Bitcoin has less than 300 days left, making it a significant event for many investors in recent times, as historically it has often helped to serve as a catalyst for a new bull market. (What is Bitcoin halving?)
However, a new report released by the Cryptocurrency exchange Coinbase last week shows that since History of bitcoin has only halved three times in its history, the actual evidence of whether it can really have a positive impact on the BTC market is still unclear.
Bitcoin is also influenced by many external factors
We know that every approximately four years, Bitcoin's miner rewards will decrease by half as much as before. The next halving is expected to occur between April 2024 and May 2024, which will reduce BTC's block rewards from 6.25 BTC per block to 3.125 BTC.
Although the market generally believes that the increase in the Scarcity of BTC is conducive to the improvement of the currency price, David Duong, the report author, summarized the background of the past three halving of Bitcoin, pointing out that the halving of Bitcoin happened at the same time as some important historical monetary and fiscal policies:
- In 2012, the Federal Reserve began to purchase mortgage-backed securities and long-term treasury bond bonds for the third round of quantitative easing (QE3).
- In the second half of 2016, Brexit triggered financial concerns in the EU and the UK, leading to an increase in BTC purchases.
- In 2020, central banks and governments around the world responded to the COVID-19 pandemic with unprecedented fiscal stimulus, which boosted global liquidity.
Therefore, he believes that in addition to paying attention to the supply and demand dynamics of BTC, investors also need to have a clear understanding of the market background and the impact of US dollar trends, interest rates, and global liquidity.
Except for the third halving, the evidence supporting the price trend of Bitcoin in these halving events is not entirely clear.
Recent market liquidity decline
In addition, Duong also pointed out that liquidity across all asset classes has generally decreased in recent weeks, partly due to a 3.5% decrease in global central bank balance sheet holdings over the past two months.
Among 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, as of the end of May, tightening conditions had reduced the broad measure of global liquidity to $29.2 trillion.
Global liquidity peaked in mid February 2022, approaching $33.1 trillion, decreased by $3.8 trillion by the end of 2022, and then rebounded in the first quarter of 2023.
Generally speaking, a decrease in liquidity can have a negative impact on asset prices and exacerbate volatility.
Summary
Overall, Duong does not deny that the next halving of Bitcoin may have a positive impact on coin price performance, but limited evidence cannot fully support this argument. He believes that we have not yet seen a clear pattern fully emerge, especially because previous events have been influenced by factors such as global liquidity.
Looking ahead, with global liquidity seemingly peaking in the short term, the impact of the next halving on future Bitcoin price behavior remains to be observed.
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