Glassnode has suggested that the upcoming Bitcoin halving may not result in the supply squeeze that the market may have predicted.
Bitcoin Halving May Not Have the Same Impact Due to Spot ETFs
In a new report, on-chain analytics firm Glassnode discussed the impact that the upcoming Bitcoin halving could have on the cryptocurrency economy.
O “reduce by half”It is a periodic event for BTC where its block (the rewards miners receive for adding blocks to the network) are permanently cut in half.
This event is built into the currency code, which means it happens automatically. Halving occurs every 210,000 blocks, or approximately every four years.
The next such event will take place sometime next month. Historically, the halving has been considered an important event for the asset due to the way it influences its supply dynamics.
The block rewards that miners receive are the only way to introduce new BTC tokens into circulation. As they tighten during these events, the cryptocurrency’s production rate decreases after them.
As such, halvings are considered bullish events, with price increases following them due to tight supply, as supply-demand dynamics would dictate.
“However, current market conditions differ from historical norms,” says Glassnode. The reason behind this is simple; There is something now that never existed in the past: the spot exchange-traded funds (ETFs).
Spot ETFs are investment vehicles that buy and hold Bitcoin and allow their users to gain indirect exposure to the cryptocurrency’s price action through them. Because spot ETFs are available on traditional exchanges, they may be preferable for those who do not want to get involved with digital asset platforms and portfolios.
Thus, ETFs introduced a notable amount of new demand for the asset, with supply quickly leaving the market and entering these funds. To put this demand into perspective, the analytics firm compared it to the amount of BTC that miners issue daily onto the network.
The trend in the spot ETF flows and miner issuance since the start of the year | Source: Glassnode
As the chart above shows, Bitcoin ETF flows have generally been much higher than what miners have been introducing into circulation. Based on this, Glassnode believes that “the next halving may not result in the supply tightening as predicted.”
The report further says:
ETFs are, in essence, anticipating the impact of the halving by already restricting the available supply through their substantial and ongoing buying activity. In other words, the supply squeeze typically expected with halvings may already be in place due to ETFs’ large-scale bitcoin purchases.
Something to note, however, is that it is not always certain that ETFs will be a bullish influence on the market. Should the current inflow-heavy regime change to an outflow-dominated regime, the cryptocurrency could naturally witness extraordinary selling pressure.
In fact, spot ETF net flows have been negative for Bitcoin for four days in a row Now, therefore, this change in trend may already be in action.
BTC Price
Bitcoin recovered past the $68,000 level yesterday, but the coin has since fallen again, dropping to $64,200.
Looks like the price of the asset has has retraced a chunk of its recovery | Source: BTCUSD on TradingView
Featured image of Traxer on Unsplash.com, Glassnode.com, chart from TradingView.com
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