Why BTC is dipping before the halving
In the month leading up to Bitcoin’s fourth halving, BTC prices remained historically high despite recent volatility.
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Volatility ramped up ahead of Bitcoin’s halving. Behind the headlines that are shaping crypto markets as the halving nears.
What the halving means for BTC miners. How are mining firms preparing for the 50% reduction in block rewards?
This week in numbers. The percent of Blackrock’s ETF inflows that came from its spot BTC product, the number of sneaker NFTs in Stepn and Adidas’s co-branded collection, and more stats to know.
MARKET UPDATE
Bitcoin sinks, volatility spikes ahead of the halving
At long last, Bitcoin’s fourth-ever halving — which will reduce the amount of new BTC generated by the network every ten-ish minutes from 6.25 BTC to 3.125 BTC — is almost here.
But as anticipation has ramped up over the past month for this quadrennial crypto event, so too has market volatility, at times sharply. Since Friday, BTC and ETH have dropped by as much as 15%, and most other major cryptocurrencies have dipped alongside them, with the occasional price spike.
What’s been weighing on prices and when might things turn back around? Here’s what you need to know.
Bitcoin is down roughly 10% since the weekend.
Just last week, BTC had climbed back above $71,000 and was approaching a new all-time high. But a host of negative catalysts have since impacted the market.
Last Wednesday, worse-than-expected inflation data pressured markets of all kinds as traders feared that the Federal Reserve would delay interest-rate cuts this year. Then over the weekend, tensions in the Middle East escalated sharply, and as bitcoin responded by falling below $62,000 on Saturday night, about $2 billion in futures positions were liquidated.
By Monday morning, prices had recovered to around $66,700, but the gains didn’t stick. Some pressure may have come from Monday’s U.S. tax filing deadline, which often coincides with selloffs as some traders raise cash to pay their tax bills. On Wednesday morning, prices faltered back to the $60,000 level.
Many major altcoins have also had a rocky week, with XRP, Solana, Dogecoin, Avalanche and Cardano all falling more than 20% since Friday.
Hong Kong approved spot BTC exchange-traded funds.
In sunnier news, three financial firms in Hong Kong announced Monday that they had received conditional approval to offer spot bitcoin and ether ETFs to investors — the news likely contributed to Monday’s brief spike in prices.
Last year, Hong Kong implemented a new set of crypto regulations in the hopes of making the region a hub for the industry in Asia.
“Aside from ETFs,” Bloomberg reports, “Hong Kong is mulling a batch of applications to expand its roster of licensed digital-asset exchanges and working on a framework for stablecoins.”
It’s unclear when the new ETF products will begin trading; initial demand in the region is another question mark. Because Chinese locals can’t officially buy the ETFs and the issuers are relatively small firms, Bloomberg ETF analyst Eric Balchunas suggests the result will likely be “additive” — as opposed to the significant boost that the U.S. ETFs gave crypto markets.
The bottom line…
BTC has seen major selloffs in the days right before and after previous halvings, so the current unsettled market isn’t unusual. All three previous halvings also preceded gains over the following six months that averaged 348%.
But traders should be cautious in assuming the halving will precede gains this time around. While many analysts are strongly bullish, others suggest that prices could actually fall in the short term (perhaps because shifting macroeconomic circumstances could blunt any gains).
As Coinbase Institutional points out, even if we do see a post-halving boom, it could have more to do with the wave of media attention that the halving brings than anything intrinsic to its economics. In any case, we’ll know more in a few days!
MINER THREAT
How the halving could impact Bitcoin miners
In the next few days, bitcoin mining companies will see their entire economic model shift.
That’s because the halving will cut the amount of new BTC created by mining from around 900 BTC a day to just 450 BTC a day. At current prices, that amounts to a $10 billion decrease in yearly revenue.
What does this mean for miners? As CoinShares analyst Matthew Kimmell told Bloomberg, “With revenues across the board decreasing overnight, the strategic response of each miner, and how they adapt, could well determine who comes out ahead and who gets left behind.”
Here’s what you need to know.
How do miners make money?
Bitcoin uses a “proof of work” system to ensure its security and verify new transactions. About every ten minutes, all of the computers on the network race to become the first to solve a simple but time-consuming math puzzle.
The winner gets to add the latest “block” of new transactions to the blockchain and is rewarded with newly-created bitcoin and fees in exchange. After this month’s halving, the block reward will shrink from 6.25 BTC (worth around $380,000) to 3.125 BTC (worth around $190,000).
Mining difficulty has reached all-time highs.
Compared to the last halving, in 2020, mining is 600% more difficult — meaning it requires 600% more computing power. That’s because mining firms are in a continual arms race to build ever more powerful and energy-efficient systems to remain competitive as the amount of new bitcoin they can mine declines over time.
With the halving fast approaching, miners — racing to add the last blocks before the reward is reduced — have thrown more power at the network than ever before, with mining difficulty hitting new all-time highs.
Miners have invested billions in advance of the halving.
In preparation for the halving, Bloomberg reports that public mining firms invested heavily in new computers (and in acquiring smaller rivals), “raising billions of dollars to fund the purchases by offering new shares.”
One major mining firm, CleanSpark, purchased 100,000 new machines that are more powerful and efficient than the computers they replaced. The new rigs created “meaningful gains in our bitcoin production without having to increase the energy use of our data centers,” says CleanSpark’s CEO.
But 80% of American mining firms are privately owned, without the same ability to raise capital. As a result, some analysts expect that the sector could become increasingly consolidated, with only highly capitalized mining companies able to compete.
Short sellers are targeting mining stocks.
At least some investors are predicting that shares in publicly traded mining companies like Marathon Digital and Riot Platforms will fall as a result of the halving, with around $2 billion in short interest (representing bets that prices will dip) as of April 11.
Miners are increasingly in it for the fees.
Miner revenues in recent weeks have approached all-time highs. According to a new Bernstein report, this has given them a “solid cushion” as the halving approaches.
Meanwhile, transactions on the BTC network have spiked in April, driven in part by innovations like Bitcoin Ordinals and BTC Layer 2 networks like the Lightning Network and Stacks. As a result, the fees miners can earn on the network have spiked.
As Bernstein’s analysts noted, fees now make up between 10% and 40% of mining rewards and, crucially, fees are unaffected by the halving.
BTC mining has a new rival in artificial intelligence.
Other crypto miners aren’t the only competition in 2024. AI’s explosion has created an entirely new industry that requires similarly huge data centers and is driving up competition for the cheap electricity that crypto miners rely on.
“The artificial intelligence crowd is willing to pay three or four times what bitcoin miners were paying [for electricity] last year,” a partner at mining-firm investor Bitcoin Opportunity Fund told Bloomberg.
As a result, the cheap, long-term energy contracts that miners depend on may be harder to lock down in the future. Some firms, like Iren and Hive Digital Technologies, have begun to diversify into AI themselves, although that trend could slow if BTC prices continue to rise.
The bottom line…
No matter what impact the halving will have on miners, mining remains a fundamental part of bitcoin’s economics.
“If you zoom out and look at bitcoin over the long term, there's a very positive trajectory in the price upwards and to the right.” Riot Platforms CEO Jason Les recently said. “And that's because bitcoin is sound money, bitcoin has a fixed supply.”
The halving, as Les put it, “is a part of that fixed supply in action.”
NUMBERS TO KNOW
1,000
Number of NFTs that Adidas is releasing in partnership with Stepn, a “move-to-earn” game that rewards users with crypto for running or walking. The Solana-based NFTs feature various Adidas sneakers and come with unnamed digital and physical “exclusive perks.” The majority of the NFTs are being released this week and are priced at 10,000 GMT (Stepn’s native token), which is worth around $2,300.
20%
Percentage of BlackRock’s first-quarter ETF inflows that came from the firm’s new spot bitcoin ETF — a number that gets even more impressive when you know that BlackRock has more than 400 ETFs. Since BlackRock launched its iShares Bitcoin Trust (IBIT) ETF on January 11, it’s become “the fastest-growing ETF in history,” according to CEO Larry Fink.
14
Number of years one user waited before moving 50 BTC (about $3.1 million as of Tuesday) from a wallet on Sunday. The bitcoin was likely a block reward, which was mined in April 2010, when BTC’s price was closer to $0.07. Originally, block rewards were 50 BTC — after this week’s halving, the network’s fourth, they’ll be 3.125 BTC.
TOKEN TRIVIA
How many Bitcoin blocks are mined between halvings?
A
210,000
B
420,000
C
630,000
D
840,000
Find the answer below.
Trivia Answer
A
210,000
