Sophia’s Thoughts On The Upcoming Bitcoin Halving
The Bitcoin halving is meant to occur in less than two weeks. But what does this really mean? And how may it impact Bitcoin and beyond?
These are Sophia’s Thoughts:
The upcoming halving will slash the Bitcoin block reward by half, directly impacting the economics of Bitcoin mining.
The monetary inflows from the spot Bitcoin ETFs have created an unprecedented amount of demand for BTC, supporting higher price action and mitigating downside effects of miner sell-offs before the halving.
In addition, ordinals have sparked an increase in on-chain transactions, generating new income for miners through heightened transaction fees that could offset the impact of reduced block rewards.
Sophia, our AI-powered crypto intelligence bot, sees Bitcoin as fairly priced currently when considering both sentiment and fundamentals. Our intelligence suggests that more upside may unlock after the halving occurs.
Join IL Pro for free now and get access to Sophia and Pallas, our premier crypto intelligence solutions that have been helping investors trade like pros! Just tell us how you feel about crypto and let Indicia Labs do the rest. Use the offer code ILxYOU when signing up for IL Pro.
🚀 Last week’s market performance
Last week, the crypto market lost 4.2% while Bitcoin (BTC) only lost 2.7%. Pendle (PENDLE), the RWA token offering tokenized yields, continued its impressive growth for a third week in a row. It gained 22.4%, growing by more than 140% in the last 3 weeks. The worst performing coin of the week was the Layer-1 Conflux (CFX), which lost 23%.
🧐 What is your crypto mood today?
In each Sophia's Thoughts newsletter, we ask about your crypto mood. Your response to this question helps Sophia get a better sense of the pulse of crypto markets. And this ultimately translates into better insights for you when combined with Sophia's AI models. Your data empowers Sophia to provide you with even better intelligence going forward!
🔍 What is the Bitcoin Halving?
The Bitcoin halving is a pivotal event designed to halve the reward miners receive for validating transactions. This effectively slows the rate at which new bitcoins are introduced into circulation. The next halving, projected on April 20th, will decrease the reward from 6.25 to 3.125 bitcoins per block.
The Bitcoin mining process involves validators, known as miners, using powerful computers to solve complex mathematical problems. When a miner solves one of these problems correctly, transactions on the Blockchain network are processed and the miner is rewarded. The halving event reduces the reward that a miner can get for validating transactions. This reduction in reward means that the same effort yields half the Bitcoins it did before the halving. As a result, the halving can affect the profitability of mining, impacting the industry as only the most efficient miners can sustain lower rewards.
Halvings are scheduled to occur after every 210,000 blocks are mined. That happens approximately every four years. Historically, halvings have led to significant price volatility and rallies. For instance, following the 2012 halving, Bitcoin’s price surged by over 8,000% within a year. After the 2016 halving, the price doubled a year later.
Halvings play a large role in Bitcoin’s economic model, ensuring that its total supply will never exceed 21 million Bitcoins. As we approach the 2024 halving, the anticipation builds around how this event will influence Bitcoin’s market dynamics and overall valuation.
½ The 2024 Halving Event
This Bitcoin halving in April 2024 distinguishes itself through unprecedented conditions: the introduction of Bitcoin ETFs and a surge in on-chain activity due to ordinal inscriptions.
The approval of spot Bitcoin ETFs in early January has fundamentally transformed the market dynamics surrounding Bitcoin. These ETFs have catalyzed an unprecedented level of demand for Bitcoin, attracting both institutional and retail investors. The substantial inflows into these ETFs have turbocharged demand, absorbing a significant portion of the daily new Bitcoin supply. We have seen the impact of the ETF’s recently as Bitcoin’s price recently hit a new all-time high. This is the first time all-time highs are reached right before a halving. The influx of capital not only supports higher Bitcoin prices but also alters the supply and demand equilibrium. With the halving set to reduce the rate of new Bitcoin entering circulation, the continued demand from ETFs could mitigate the traditional sell pressure from miners. This could lead to a more stabilized price action post-halving. It introduces a new layer of complexity to the historical patterns observed around halvings and underscores the evolving nature of Bitcoin’s market structure.
“The demand side is certainly impacted by (the ETFs) and one of the things that has happened previously before the halvings is that there is some sell pressure from the miners because they’re upgrading their equipment. And it looks like this time that supply that’s coming into the market is being absorbed by these ETFs,”
An additional component altering the calculation is the introduction of Bitcoin Ordinals. The Ordinals protocol has introduced an innovative use case for Bitcoin. By enabling the inscription of digital artifacts directly onto the Bitcoin blockchain, Ordinals have significantly increased on-chain activity. This surge in usage has generated substantial transaction fees, offering a new revenue stream for miners. With the upcoming halving reducing block rewards, these additional fees could become a crucial support for miners’ profitability. The popularity of Ordinals, evidenced by the millions of inscriptions and the generation of over $200 million in fees, shows a growing interest in utilizing Bitcoin for NFT-like collectibles. This trend could play a significant role in sustaining miner income and network security in a reduced block reward environment. It marks a departure from past halvings where miners’ revenue was predominantly dependent on the block subsidy.
🧠 Sophia’s Intelligence About Bitcoin
Over the last 4 weeks, Sophia’s Mood for Bitcoin has been mostly neutral with a slight tilt towards bearish. Most of it is driven by Bitcoin’s fundamentals, which Sophia has viewed as rather weak. But the strong sentiment for Bitcoin expressed on social chatter is providing a lift for the valuation of Bitcoin. Consistent with Sophia’s muted attitude, Bitcoin has mostly flatlined over the course of the last four weeks, only gaining 0.5%.
Comparing Sophia’s intelligence for Bitcoin now to the last time there was a halving in May 2020, we observe a few key differences. First, Sophia’s Mood for Bitcoin is a bit more neutral now than it was during the last halving. Most of it is driven by the fact that Sophia measures that the price of Bitcoin is higher now relative to fundamentals than it was four years ago. However, sentiment now is much stronger than it was four years ago. All in one, Sophia’s assessment now is that the recent price hikes post ETF approval appear to have pushed the Bitcoin price as high as can be justified by fundamentals. Sophia’s AI-powered insights suggest that the upside for Bitcoin is currently capped and boosted only by the strong sentiment on social chatter.
However, we are still about 2 weeks away from the halving event. And things could change until then. In a way, Sophia’s Mood and valuation insights for Bitcoin now are more similar to what they were for Bitcoin Cash (BCH) during the last halving. Quick overview: Bitcoin (BTC) and Bitcoin Cash (BCH) are highly correlated because BCH is a fork of BTC so they share many similar fundamentals. The correlation between the returns of these two crypto assets in the last 5 years is 74%. During the last Bitcoin halving, Sophia’s Mood for BCH was mostly neutral just like for BTC now. Sophia also perceived the valuation of BCH to be fair or slightly high relative to its fundamentals. The main difference: sentiment for BTC now is much stronger than it was for BCH during the last halving. Then, as we got closer to the actual halving event, Sophia’s Mood for BCH started to become more bullish. This bullish turn anticipated a growth spurt in the price of BCH. Over the month after the Bitcoin halving event in 2020, BCH gained 10%.
What does this all tell us? On the one hand, Sophia’s insights suggest that Bitcoin is currently fairly priced once we take into account both sentiment and fundamentals. We may see a few small declines in the short run, which could be good opportunities to buy the dip. On the other hand, Sophia’s insights also indicate that more upside is possible once we hit the halving event. If the history of Bitcoin Cash is any indication, Sophia’s intelligence suggests that we may still not have hit the actual 2024 high in the Bitcoin market.
Do you want to stay up-to-date on the latest crypto intelligence? Use the offer code ILxYOU to join Indicia Labs for free.
Indicia Labs does not provide investment, tax, or legal advice. You are solely responsible for determining the suitability of any investment, investment strategy, or related transaction based on your personal investment objectives, financial circumstances, and risk tolerance. Indicia Labs may offer educational information about digital assets, which may include blog posts, articles, third-party content, news feeds, tutorials, and videos. This information does not constitute any form of advice, and you should not rely on it as such. Indicia Labs does not recommend buying, earning, selling, or holding any digital asset and will not be responsible for any decisions you make based on the provided information. Any content provided by Indicia Labs may contain errors, inaccuracies, or outdated information and should not be relied upon for making any investment decisions and Indicia Labs and its affiliates hold no responsibility for the accuracy of the provided information or content.
As with any asset, the value of digital assets can fluctuate, and there is a significant risk of losing money when buying, selling, holding, or investing in digital assets. Consult your financial advisor, legal or tax professional regarding your specific situation and financial condition, and carefully consider whether trading or holding digital assets is suitable for you.
Indicia Labs is not registered with the U.S. Securities and Exchange Commission and does not offer securities services in the United States or to U.S. persons. You acknowledge that digital assets are not subject to protections or insurance provided by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.
