Last Saturday, the highly anticipated Bitcoin halving finally took place! Historically, the Bitcoin halving event has been seen as a catalyst for driving up the price of Bitcoin, as the reduction in the supply of new Bitcoins may increase its value.
However, in this halving event, Bitcoin may have a hard time further increasing in value. Even JPMorgan predicts that after this round of halving is completed, the price of Bitcoin may plummet.
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Halving does not necessarily lead to further increases
Bitcoin halving refers to the reduction in the amount of new Bitcoins entering circulation by halving the amount of Bitcoins that miners receive as a reward for solving complex mathematical problems to verify transactions.
This is a mechanism designed in the Bitcoin protocol to control the rate at which new Bitcoins are issued. Halving usually occurs at a specific time point set in the Bitcoin protocol, approximately every four years.
Data shows that at 8:09 am Beijing time on April 20, 2024, Bitcoin successfully completed its fourth halving at block height 840,000, reducing the mining reward on the Bitcoin network from 6.25 BTC to 3.125 BTC. The previous halving occurred on May 11, 2020.
In the months leading up to this event, the market generally expected it to be a bullish catalyst for Bitcoin, helping the token reach a new all-time high in 2024.
However, if we look back at history, we will find that although the halving event is often accompanied by significant price fluctuations in Bitcoin, not every halving immediately results in a price increase. Sometimes the price adjusts in the period following the halving.
In this case, analysts from JPMorgan, including Nikolaos Panigirtzoglou, believe that “we expect the price of Bitcoin to not increase after the halving, as this positive event has already been priced in. In fact, we believe that the price of Bitcoin will decline after the halving for several reasons.”
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Several reasons for the significant drop in Bitcoin
Firstly, JPMorgan states that the Bitcoin market is still in the overbought territory after surging to a record high in March. Panigirtzoglou pointed out several indicators that confirm this.
In another report at the end of March, he stated, “The market remains quite optimistic about the prospect of a significant increase in Bitcoin prices by the end of the year. A large part of this optimism comes from the view that even with the reduction in Bitcoin’s supply after the halving event, the demand for Bitcoin through spot ETFs will continue to grow at the same pace.”
JPMorgan also observed that despite the recent recovery in the crypto market, venture capital financing remains low, which is another unfavorable factor for the price of Bitcoin.
“We previously believed that the recovery of inflows of crypto venture capital was a necessary condition for the sustained recovery of the crypto market. Therefore, in our view, the subdued inflows of venture capital since the beginning of the year pose a downside risk,” wrote JPMorgan in the report.
Analysts suggest that Bitcoin mining companies will be hit after the halving: some companies may choose to relocate to improve efficiency due to reduced mining rewards, while others may merge with large publicly traded mining companies.
Analysts wrote, “After the halving event, some Bitcoin mining companies may also seek diversification by entering low-cost energy regions such as Latin America or Africa and deploying inefficient mining equipment to obtain returns from these idle mining devices.”
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