Guest blog by Nathaniel Whittemore (NLW)
NLW is host to Coindesk The breakdown – the fastest growing podcast in crypto. Whittemore was a VC at Learn Capital and was part of the founding team at Change.org
The views and opinions expressed in this article are those of the author and do not necessarily represent the views or opinions of Kraken or its employees.
Every Bitcoin halving is the same in that they all halve the mining block reward. This common dynamic has led to similar patterns of BTC trading after past halvings.
Yet the current narrative around Bitcoin – as well as the structural forces driving the BTC market – are unique this time around.
Consensus grows: Bitcoin is here to stay
Before each previous halving, the main question was whether Bitcoin would survive. If there was a previous bull cycle, was it a coincidence? Was the last all-time high just a speculative mania before a crash to zero? To a large extent, the consensus in financial markets is that Bitcoin is here to stay as an asset class.
Following the SEC's approval, several Wall Street firms now offer Bitcoin ETFs. Global regulatory systems are being deployed. The Bitcoin network has been securing value cryptographically for 15 years and Kraken celebrated its 12th anniversary.
This is an industry built on solid foundations. Markets are beginning to understand that Bitcoin is a permanent technological breakthrough – an irreversible monetary innovation.
The traffic surge has begun
With increased credibility came increased institutional trust and understanding. Hedge funds and asset managers are not surprised by the halving. During the last halving, in May 2020, there was very little interest in Bitcoin until Paul Tudor Jones started singing its praises.
The legendary hedge fund manager warned of currency depreciation and called Bitcoin the “fastest horse in the race.” This was the week before the last halving.
The bull market that followed was frenetic, but it got off to a relatively slow start. It took six months for Bitcoin to double after the halving. Traditional investors still openly scoffed at the idea of adding Bitcoin to a diversified portfolio.
As this halving approaches, and especially with the launch of 11 BTC ETFs, institutional investors are pouring billions into Bitcoin. They are not waiting for the halving to see if Bitcoin is real. Allowances are purchased in advance. Placing Bitcoin on a company's balance sheet is no longer a weird gimmick, it's now a viable cash flow strategy.
First half near all-time high
The main reason this halving is different is the price of Bitcoin. Bitcoin is already up 300% from its price below $16,000 in November 2022, the height of the crypto winter.* We are heading towards a halving near its all-time high, a level which has never coincided with a halving before. Not even close.
After the previous two halvings, it took Bitcoin seven months to reach new all-time highs. The halvings themselves were disappointing. Each time, Bitcoin remained stubbornly stagnant in the immediate aftermath while everyone wondered if another bull market would ever arrive. This time, Bitcoin has been rising for several months already.
A crucial step: the new supply of Bitcoin is rarer than that of gold
Each halving has much less impact on the Bitcoin market in terms of supply reduction than the previous one. When Bitcoin experienced its first halving in 2012, less than half of Bitcoin's supply had been mined. The block reward has been reduced from 50 bitcoins to 25 bitcoins. Bitcoin went overnight from a 25% increase to its annual supply of 12.5%.
During this halving, the vast majority of the Bitcoin that will one day exist has already been produced. Only 1.7% per year is added to the total bitcoin supply. But reducing that rate to 0.85% is a watershed event, because there will now be a greater percentage of gold added to the total gold supply each year than there will be of bitcoin added to the bitcoin supply.
Every year, newly mined gold adds 1% or more (3% were added in 2023) to the total gold supply. So even gold – once the global standard for store of value due to its scarcity – joins the long, long list of assets whose value inflation is further diluting relative to Bitcoin. No other asset – none – has a perfectly limited supply. There will never be more than 21 million bitcoins.
In the markets, this period is almost never different. This time it's different.
For the first time before a halving, Bitcoin is widely available via ETF and increasingly accepted as a new permanent asset class. Traditional finance has only just started buying Bitcoin. Bitcoin's market capitalization trades at a tiny fraction – around 8% – of that of gold, even though it is a demonstrably superior store of value. The new supply added to existing Bitcoin each year will be reduced to a trickle, to just 0.85%.
As we enter an era in which $300 trillion in professionally managed business assets begin to adopt Bitcoin as a permanent asset class – just as its newly created supply dwindles towards zero – there is every reason to believe that we are much closer to the very beginning of the era. Bitcoin revolution only the end.
*Past performance is not a reliable indicator of future results.
Investing in crypto assets is risky and each token can carry its own set of risks. Below is a list of risks that generally apply to all crypto assets:
Volatility: The performance of crypto assets can be very volatile, with their value decreasing as quickly as they can increase. You must be prepared to lose all the money you invest in crypto assets.
Lack of protection: Investments in crypto assets are unregulated and neither the Financial Services Compensation Scheme (FSCS) nor the Financial Ombudsman Service (FOS) will help or protect you if something goes wrong with your crypto asset investments.
Liquidity: Some crypto asset markets may suffer from low liquidity, which could prevent you from buying or selling your crypto assets at the price you want or expect.
Complexity: Specific crypto assets may carry specific complex risks that are difficult to understand. Do your own research, and if something seems too good to be true, it probably is.
Don't put all your eggs in one basket: Placing all your money in one type of investment is risky. Spreading your money across different investments makes you less dependent on anyone for success.