There are many forces moving bitcoin, yet few attract the same level of attention as the halvings (when the block reward is cut in half). Historically, halvings have proven to be important catalysts for bull markets, and while the rate of impact is decreasing, the upcoming halving is likely to prove important for bitcoin’s price formation.
This op-ed is part of CoinDesk’s “Future of Bitcoin” package published to coincide with the Halving in April 2024. Torbjørn Bull Jenssen is the CEO of K33.
At K33, we expect speculators to yet again front-run the event, as they have in all past halving events. On average, bitcoin has appreciated 14% over the month leading up to the halving, and we would not be surprised if 2024 would be in line with this. That said, there are many factors at play, and neither we nor anyone else can predict with certainty. But there are certain things we do know with certainty.
Demand is key
First of all, the bitcoin price is always determined by the net demand for holding bitcoin. With a given amount of bitcoin available at any point in time, its value must adjust until investors realize their desired allocations, denominated in e.g. USD.
To make a simplified example: If there was only one bitcoin and two investors wanted to hold 1000 USD worth of bitcoin each, that would only be possible with bitcoin valued at 2000 USD a coin and each investor holding half a coin each.
The current inflation rate is around 1.8%, around the same as for gold, and will drop to 0.9% in late April. This means that without a change in demand, the halving should only trigger a 0.9% price increase over the first year after the halving, relative to what would be the case without the halving.
Without a change in demand, the market cap should stay fixed. With 1.8% yearly inflation in the stock of bitcoin, the price must drop 1.8% for the market cap to stay the same. With 0.9% inflation, the drop would only need to be 0.9%.
Story continues
The demand for bitcoin is of course nothing but fixed, but ironically, the analysis above proves an important point: While the halving is a supply-event, all of its impact on price must…
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