Bitcoin (BTC) is often compared to an unstoppable force that continually reduces its new supply, while retail and institutional adoption acts as an immovable object driving up demand for the cryptocurrency. The recent approval of spot Bitcoin exchange-traded funds (ETFs) in the United States, the largest global equity market, has further fueled this demand and broken records since their launch. This demand could potentially surge even higher with the upcoming Bitcoin halving event.
In the world of cryptocurrency, speculation runs rampant regarding the possibilities of new highs or lows. The hot narrative of the moment revolves around the various factors that may increase or hinder the growth of the blockchain and decentralized finance industry. However, amidst all the uncertainty, Bitcoin remains a constant presence, steadily progressing with its halving event occurring every 210,000 blocks. This event reduces Bitcoin miners’ rewards by half, requiring them to do the same amount of work for half the BTC reward.
The predictability of the halving event brings comfort to those in the cryptocurrency community who have experienced previous Bitcoin cycles. Newer participants in the Bitcoin market often refer to these experienced individuals as “veterans,” likening their journey to that of soldiers in a war. The concept of “number go up” is ingrained in the halving event, as it follows the basic law of economics: reducing supply and increasing demand to drive up the price of an asset.
Bitcoin’s tokenomics reflect a deflationary issuance schedule, with the halving of new supply occurring every four years. While the halving event is technically infinite, gradually decreasing until the year 2140, Satoshi Nakamoto ensured a reduced supply, leaving the demand side of the equation to the free market. Satoshi’s understanding of economics, including theories from the Austrian School, guided this approach.
In recent years, Bitcoin has seen continuous price discovery and retracement, influenced by various macroeconomic factors. Low interest rates across the developed world following the Great Recession of 2008-2009 have encouraged speculation in riskier assets, including emerging technologies like Bitcoin. However, the U.S. Federal Reserve’s decision to raise interest rates from 0.25% to 5.5% since March 2022 has affected Bitcoin’s price. Despite this, Bitcoin’s price remains around $63,000, suggesting that other factors are currently outweighing the impact of interest rates.
One of these factors is the narrative that Bitcoin serves as a hedge against inflation and a store of value, driven by the deflationary nature of regular halvings. Experts like Greg Foss promote this narrative, further fueling the demand for Bitcoin. However, the question of demand remains unanswered. The fiat value of Bitcoin will rise if demand remains constant and supply decreases. This is where the role of major institutions and ETFs comes into play.
While retail trading of Bitcoin has always existed, there has been a recent surge of interest from traditional financial institutions. Some believe that this institutional adoption will lead to a “Bitcoin Supercycle,” with increased demand continuously driving up the price. However, others argue that the adoption of crypto by the masses, rather than institutions, is the primary force behind utility and stability in the market.
In economics, the concept of equilibrium is often discussed. However, in reality, equilibrium is constantly shifting, as evidenced by the price action of Bitcoin. The halving cycle of Bitcoin ensures a predictable reduction in supply, making it a deflationary asset. The variable in the equation is the demand side, which can be influenced by various narratives surrounding Bitcoin’s use as electronic cash, a store of value, or simply as a technology that drives the price higher. As long as demand remains consistent, Bitcoin’s fiat value will likely continue to climb with each cycle.
Bitcoin recently reached a new all-time high of $73,900 before the upcoming halving event, leaving analysts uncertain about its future price. However, considering inflation since Bitcoin’s previous ATH in November 2021, the actual ATH today is around $79,000. The institutional adoption of Bitcoin is expected to bring stability to its purchasing power, but without mass usage and utility, price discovery will likely continue as it has in the past. Amidst all the uncertainty, one thing remains certain: the Bitcoin halving.
Disclaimer: This article does not provide investment advice or recommendations. Every investment and trading decision involves risk, and readers should conduct their own research before making any decisions. The information in this article is for general purposes only and should not be taken as legal or investment advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.