Differences in the Fourth BTC Halving

This years halving — the quadrennial slashing of the amount of new bitcoin (BTC) entering into circulation — may be the most important since the first one around 12 years ago. And yet, despite intense interest in the event, its price impact may be more muted this year than previous halvings. Recently launched protocols, like Ordinals, and an increasingly robust mining sector, mean the effect could be relatively soft.

The Bitcoin halving, expected to take place late Friday night or early Saturday (April 20), comes with heightened expectations. In each previous case so far, the halving preceded massive sector-wide rallies. There is an ongoing debate whether the halving is “priced in,” or whether the reduced amount of bitcoin entering into circulation (this time dropping from around 900 BTC per day to 450 BTC) will create a kind of supply shock that will drive prices up (assuming demand for bitcoin remains constant or increases).

There are two economic theories that explain this debate. On one side are those who believe the halving is priced in believe the efficient market theory. They say because the event is known in advance, and everyone shares the same information, it is impossible that bitcoin is currently undervalued. On the other side are those who point to the historic four-year boom and bust cycle in crypto and/or the aforementioned supply-and-demand constraints.

Changes in Institutional Participation

The introduction of a Bitcoin spot ETF not only changes the type of buyers of Bitcoin (or how they enter the market) but also has another significant impact: it helps legitimize the industry. In previous years, the largest buyers of Bitcoin were relatively unknown software company MicroStrategy led by Michael Saylor, prominent Bitcoin enthusiast Jack Dorsey's Block, and Elon Musk's Tesla. However, due to regulatory concerns, Tesla partially backed away from its commitment.

ETFs have changed this landscape permanently. This is not to say that Wall Street lacks critics, but it's noteworthy that companies like BlackRock, Fidelity, Franklin Templeton, VanEck, and WisdomTree are all vying to be the first to enter the market, providing a traditional financial gateway to this emerging digital market. Bitcoin, once dismissed as a Ponzi scheme, is becoming normalized.

Macroeconomic Factors

Analysts from JPMorgan and Goldman Sachs both released reports this week. JPMorgan analysts, Rejendra Sethi and Charles Pierce, wrote that the pre-halving rally could be a way to stir excitement but may have also “pulled forward” part of the “typical post-halving bounce.”

More importantly, the macroeconomic conditions in 2024 are entirely different from the past decade of low-interest rates and low inflation. Goldman Sachs' Fixed Income, Currency and Commodities, as well as Equities teams, wrote that the currently high interest rates could dampen the attractiveness of high-risk investments like cryptocurrencies.

This week, there were reports that the Federal Reserve might change its interest rate policy, which would inject liquidity into the economy and also support Bitcoin's performance. Price predictions from market analysts vary widely, with some suggesting Bitcoin could drop to $40,000 post-halving, while others forecast a rebound to over $150,000 by the end of the year.

Impact of BTC Halving on Mining Industry

The halving of block rewards, rising costs, cautious investors, and an increasingly crowded mining industry are all factors that could intensify competition for the next block after the block reward halving. This could be a harsh reality for Bitcoin miners.

Historically, halvings have always been a bullish factor for Bitcoin prices, helping miners reap hefty profits. However, this time around, the situation is different due to intensified competition from both public-traded and private Bitcoin miners. They not only need to mine the next block but also convince investors and the market of their ability to make money.

As the halving approaches, investors are cautious about miners. For instance, shares of mining companies Marathon Digital, Hut 8, and Riot Blockchain have dropped by approximately 33%, 35%, and 46% respectively this year.

Launch of Runes

The launch of the Ordinals protocol has made the creation of similar to NFTs possible, changing the game rules for Bitcoin. It has not only altered the economic landscape for miners but also reignited developers' excitement about crypto, as Bitcoin has been losing ground to blockchains like Ethereum and Solana in recent years.

This halving will also introduce the Runes protocol, created by Ordinals founder Casey Rodarmor. The system will allow for the creation, minting, and transfer of tokens on Bitcoin and is planned to launch immediately after the halving. The goal is to introduce greater utility to BTC—a mission that began with Rodarmor's earlier creation, Ordinals.

Rodarmor describes Runes as a place to create meme coins on Bitcoin, offering simplicity and efficiency beyond what the current BRC-20 token standard provides. Some Rune projects are already planning to launch concurrently with the new protocol.