Anticipation of Bitcoin Halving Fuels Crypto ETFs

The price of bitcoin has been soaring lately and a once-every-four-years event could keep upward pressure on the cryptocurrency. 

Since the start of the year, bitcoin has risen from around $16,500 to $30,000, a gain of more than 80%. The ProShares Bitcoin Strategy ETF (BITO), which closely tracks bitcoin futures, has delivered a similar return.  

Though there are many reasons for bitcoin’s recent ascent—including a decline in long-term interest rates and rising appetite for risk among investors—one catalyst that applies to bitcoin specifically is what’s known as the halving. 

To process transactions and keep the blockchain secure, bitcoin relies on the participation of entities called miners who contribute enormous amounts of computing power to the network. In return, the miners receive block rewards (freshly minted bitcoin) as compensation.  

These block rewards are cut in half every 210,000 blocks, or roughly every four years. Currently, block rewards are 6.25 bitcoin per block, and they will fall to 3.125 bitcoin per block after the next halving.  

Historically, the price of bitcoin has risen before, and after these supply reductions, there are many who believe that this time will be no different.  

According to data from CoinTelegraph, the price of bitcoin was at least 15% higher 150 days after each of the previous three halvings. 

Separate data from CCData shows that bitcoin rallied ahead of each of those halvings also. The cryptocurrency jumped by 19% in the 12 months leading up to the May 2020 halving; it gained 142% leading up to the July 2016 halving; and it surged 384% leading up to the first halving in November 2012. 

Adding Fuel to Crypto ETFs 

Given the strong historical precedent, anticipation of the next bitcoin halving—which is estimated to take place in April or May of 2024—is adding fuel to this year’s bitcoin rally. 

In addition to bitcoin futures tracking ETFs like BITO, funds that hold stocks of companies in the cryptocurrency industry are also rallying on halving excitement. 

The Valkyrie Bitcoin Miners ETF (WGMI), the Bitwise Crypto Industry Innovators ETF (BITQ) and the Global X Blockchain ETF (BKCH) are up anywhere from 90% to 130% on a year-to-date basis. 

These ETFs tend to rise and fall with cryptocurrencies, so anything that pushes bitcoin prices higher is generally a good thing for them.  

No Guarantees  

While the bitcoin halving was a bullish catalyst for bitcoin in the past, there’s no assurance that history will repeat itself. As with anything in markets, past performance is no guarantee of future results.  

As bitcoin matures, it won’t necessarily act like it did in its early days. The bullish thesis behind the halving is that with each reduction in block rewards, bitcoin becomes scarcer because there is less new supply coming onto the market.  

That’s true—but it’s also well-known. Bitcoin is designed to have a maximum supply of 21 million; everybody knows that, and in markets, what everybody knows usually isn’t information that can leveraged into outsized returns.  

That doesn’t mean history won’t repeat and bitcoin runs up into the halving and keeps running for a while after.  

But it’s something that a prudent investor probably shouldn’t bet the farm on.  

Follow Sumit Roy on Twitter @sumitroy2