Three reasons why the Bitcoin halving will trigger a selloff

Three reasons why the Bitcoin halving will trigger a selloff
Markets
Bitcoin faces a downward trend on the back of the halving, a economist warns. Credit: Shutterstock / Shutterstock.AI
  • Bitcoin is set to buck historically bullish halving trend, economist says.
  • Several macroeconomic and industry factors threaten to spoil the celebratory mood.

Another voice is warning that Bitcoin’s halving, anticipated on April 20, may diminish the top cryptocurrency’s price.

Paolo Tasca, founder of the DLT Science Foundation and a professor at University College London, told DL News that a poor macroeconomic backdrop, recent gains, and selling from Bitcoin miners will make it difficult for Bitcoin to rally.

“Halvings have been followed by price appreciation afterwards,” Tasca said. “Some investors think history is going to repeat itself.”

$12 billion price driver

But this time is different — Bitcoin has soared thanks to more than $12 billion in inflows to Bitcoin ETFs. New approvals of the dozen or so funds in January has opened up the crypto asset class to a broad new swathe of investors.

That ETF-driven price catalyst means that when it comes to the halving, investors will likely “sell the news,” he said.

He’s referring to a financial term where an expected positive event can often be priced in to an asset, while the event itself becomes a catalyst to sell.

Bitcoin halvings are usually considered bullish events because they cut Bitcoin rewards to miners in half, reducing the supply.

Price drops in the weeks following Bitcoin halvings aren’t unprecedented. After the second halving in July 2016, Bitcoin fell 26% before rebounding.

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Macroeconomic headwinds

Tasca said macroeconomic factors may cause a post-halving Bitcoin rally to fizzle.

“We are in a period of high inflation, high interest rates and entering a period of liquidity tightening,” Tasca said, noting that during previous halvings “interest rates were close to zero, which were good conditions to propel allocation into risky assets.”

He’s not the only one to say so.

Quinn Thompson, founder of crypto hedge fund Lekker Capital, previously told DL News that rising yields on long-duration bonds is dampening Bitcoin’s price.

The pressure on long-duration bonds has a “tightening effect on financial conditions,” Thompson said. “This is bad for Bitcoin because it implies less liquidity.”

It’s the same thing that weighed on Bitcoin’s price from March 2022, when bond yields started rising as the Fed raised interest rates to fight inflation.

This situation tightened liquidity, suppressing investor interest in risky bets like Bitcoin and cryptocurrencies and driving prices down.

Arthur Hayes, founder of crypto exchange BitMEX, has also predicted Bitcoin’s price will fall around the time of the halving amid a combination of Americans selling their digital assets ahead of the April tax deadline, and the Federal Reserve’s quantitative tightening programme.

Miners ready to sell

Bitcoin miners are a wildcard.

Miners are sitting on $5 billion in Bitcoin that they may want to liquidate, Tasca said.

Some miners have already indicated plans to sell some of their Bitcoin to fund other purchases.

Hut 8, a Bitcoin mining company with $573 million worth of Bitcoin on its balance sheet, told DL News that it plans to start deploying it after the halving. It’s looking to buy smaller miners that are struggling with the halving’s reduction of mining rewards.

Marathon Digital Holdings, another top US Bitcoin mining firm, also previously told DL News it was “shopping around” for acquisitions ahead of halving.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.