Why This Year’s Bitcoin Halving Is “Actually Different”: Grayscale

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The upcom­ing Bit­coin (BTC) halv­ing is like­ly a bull­ish devel­op­ment, but a slew of out­side fac­tors mean it like­ly won’t play out the same as in pre­vi­ous years, accord­ing to Grayscale.

Last month, the com­pa­ny suc­cess­ful­ly con­vert­ed its Grayscale Bit­coin Trust (GBTC) into the world’s largest Bit­coin ETF. The intro­duc­tion of such ETFs, accord­ing to Grayscale, may impact Bitcoin’s price as if it were a sec­ond halv­ing with­in a sin­gle year.

Are Bitcoin ETFs A Second Halving?

In a Fri­day blog post, the firm explained:

“Assum­ing that there will be $10M of dai­ly net inflows into ETF prod­ucts, if you divide dai­ly net inflows ($10M) by dai­ly amount of issued Bit­coin ($19M), you get rough­ly 50%, which is sim­i­lar to the effects of anoth­er halving.”

Since launch­ing last month, Bit­coin ETFs have absorbed a cumu­la­tive $2.6 bil­lion of inflows.

By con­trast, the “halv­ing” is when the Bit­coin net­work cuts the num­ber of new­ly issued coins with­in each Bit­coin block in half. This occurs rough­ly once every four years, with the next halv­ing set to reduce Bitcoin’s block reward from 6.25 BTC to 3.125 BTC in April.

Grayscale not­ed that the event is his­tor­i­cal­ly fol­lowed by heat­ed bull mar­kets to new all-time highs in the fol­low­ing year. How­ev­er, attribut­ing these ral­lies sole­ly to Bitcoin’s declin­ing sup­ply infla­tion may be over­sim­pli­fy­ing history.

“It seems that these peri­ods coin­cid­ed with sig­nif­i­cant macro­eco­nom­ic events,” wrote Grayscale, high­light­ing the asset’s boom in 2020 after the COVID-19 pan­dem­ic prompt­ed the gov­ern­ment to imple­ment mas­sive finan­cial stim­u­lus measures.

Though macro­eco­nom­ic winds remain uncer­tain, the mar­ket is cur­rent­ly pric­ing in a 50% like­li­hood of the Fed­er­al Reserve begin­ning to cut inter­est rates in May, accord­ing to CME Fed­watch.

A New Dawn For Bitcoin Miners and Developers

Aside from Bitcoin’s price itself, halv­ing events also tend to coin­cide with a washout among less effi­cient play­ers in the min­ing indus­try, who can no longer afford to oper­ate with only half of the pre­vi­ous BTC reward.

With net­work hashrate ris­ing and the block sub­sidy falling, Grayscale said min­ers might find them­selves in a “tense posi­tion” in the near term.

There’s a sil­ver lin­ing, how­ev­er: Bit­coin min­ers have the ben­e­fit of Ordi­nals this year, which have dri­ven up Bit­coin net­work activ­i­ty, trans­ac­tion fees, and min­er rev­enue inde­pen­dent of Bitcoin’s fixed block reward and halv­ing schedule.

While high­er fees may hurt Bitcoin’s use case for pay­ments, Grayscale added that Ordi­nals have inspired new inno­va­tions on Bit­coin that help address scal­a­bil­i­ty issues. For exam­ple, some star­tups have already announced new rollup tech­nolo­gies that let users bridge Bit­coin to more scal­able blockchains.

“These dApps rep­re­sent the fore­front of Bitcoin’s tran­si­tion into a mul­ti-faceted ecosys­tem, capa­ble of sup­port­ing a wide array of blockchain-based appli­ca­tions,” Grayscale said.

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