Ever since the Securities and Exchange Commission (SEC) approved some spot Bitcoin (BTC -4.75%) exchange-traded funds (ETFs), cryptocurrency-related news items have shown up on the front page of the financial press and even the nonfinancial press. Crypto veterans might find it amusing to see pundits suddenly using geek-speak and debating the expected impact of the imminent Bitcoin halving event.
While the halving can't be disregarded as a nonfactor, it shouldn't be viewed as the be-all and end-all of Bitcoin-related events. And with the Bitcoin price knocking on $70,000's door but then pulling back, there are other considerations -- including the musings of a central bank that's not necessarily crypto-friendly and that will remain meaningful for years to come.
It's like the Summer Olympics...or not
Just to recap, the halving is an event in which the reward for mining Bitcoin is reduced by 50%. There's an upcoming halving event, estimated to occur this Saturday or so, wherein miners' reward for verifying transactions on the Bitcoin blockchain will be halved from 6.25 coins to 3.125.
This isn't done to impoverish Bitcoin miners, of course; rather, halvings reduce the supply growth of the coins. After all, a main pillar of the bullish Bitcoin thesis is that it's written into the code that the token's supply will be limited, thereby preventing inflation and debasement.
It's tempting to make a bigger deal of the halving event than is warranted. This time, it's been thrust into the media not because this particular halving is special or different, but mostly because awareness is building and the Bitcoin price rallied recently. Moreover, it feels like the Summer Olympics because Bitcoin halvings only happen once every four years.
Additionally, huge but diminishing Bitcoin price rallies (93 times, 30 times, and 8 times) have followed the previous three halvings. Don't get too excited, though, as the historical sample size, at just three, is quite insufficient to draw any definitive conclusions.
Most of all, the financial markets are efficient, awareness is widespread this time around, and the impending halving event and its expected post-event rally have probably already been priced in ahead of time. Consider the possibility that, just maybe, foreknowledge of this year's halving event (along with a heaping dose of spot Bitcoin ETF hype) is what pushed Bitcoin to $70,000 in the first place.
Watch this, not that
Instead of obsessing over the halving, Bitcoin investors should keep tabs on America's central bank and monetary policy maker, the Federal Reserve. Unlike the halving event, which is known and already factored in, future Fed policy decisions remain unknown, unknowable, and ever in flux.
The market's consensus estimate for the number of interest rate cuts in 2024 has dropped from six or seven, to maybe two or three, to possibly one or none. This helps to explain why bond yields recently rose and the S&P 500 pulled back from its seemingly relentless rally.
Not long ago, at the Washington Forum on the Canadian Economy, Fed Chairman Jerome Powell warned of a "lack of further progress so far this year on returning to our 2% inflation goal." In other words, while the Fed will always remain data dependent, don't count on an interest rate cut happening anytime soon.
That's potentially bad news for risk-on assets, and cryptocurrency is among the most risk-on of all. Until the Fed pivot actually happens and it cuts rates, investors should expect Bitcoin to wobble and lurch.
But then, volatility is par for the course with crypto, even if it's Bitcoin, the bluest of blue-chip tokens. HODL-ing (crypto lingo for "holding") Bitcoin involves a long-term thesis that an inflation-resistant asset can gain value in relation to an inflation-wracked currency (i.e., the U.S. dollar, against which Americans generally value Bitcoin). If you're on board with this bold concept and have a years-long time horizon, then it makes perfect sense to buy Bitcoin while it's below $70,000 -- and if the halving happens to give your Bitcoins value a boost, all the better.
