The battered crypto market awaits the Bitcoin (BTC) blockchain’s fourth mining reward halving, due in April 2024, in hopes it would kickstart a major run higher, living up to its past reputation as a major bullish catalyst.
Traders, however, should note that previous halvings did not necessarily catalyze bull runs single-handedly. Macro likely also played a significant role, mainly in the form of abundant fiat liquidity conditions, according to data tracked by MacroMicro.
Bullish reward halvings?
Reward halving refers to already-programmed code that reduces bitcoin’s pace of supply expansion by 50% every four years. The next halving will reduce the per-block reward paid to miners to 3.125 BTC from 6.25 BTC.
Previous halvings happened in November 2012, July 2016 and May 2020, with bitcoin chalking out triple-digit price rallies to new record highs in the subsequent 12-18 months before entering notable downtrends.
Those bear markets ran out of steam roughly 15 to 16 months before the next halving. Bitcoin’s year-to-date gain of 56% in 2023, marking a recovery from the depth of the past year’s bear market, is consistent with the timing of the previous price bottoms.
:format(jpg)/cloudfront-us-east-1.images.arcpublishing.com/coindesk/SN3UID2WGZDRDERVGO22EL2TYE.png)
Don’t ignore the M2 growth rate
The magnitude of the expected halving-led uptrend has been and will continue to be likely contingent on major central banks – U.S. Federal Reserve, European Central Bank, Bank of Japan and People’s Bank of China – boosting their year-on-year M2 money supply growth rates.
The aggregate M2 of the four major central banks represents the total value of their respective fiat currency circulating in the market.
:format(jpg)/cloudfront-us-east-1.images.arcpublishing.com/coindesk/DD6WXNOZ5VGPFIWQEY6OA5SGLA.png)
The previous post-halving bull runs were characterized by a 6% or higher aggregate M2 money supply growth of the Fed, ECB, BOJ and PBOC. Meanwhile, bear markets coincided with a deceleration in the money supply growth rate.
The pattern validates the popular argument that bitcoin is a pure play on fiat liquidity.
While the total M2 money supply growth rate has turned positive this year, it remains well below the 6% mark. The Fed and most other central banks have raised rates rapidly over the past 12-18 months to tame inflation, and the probability of renewed liquidity easing in months ahead appears low.
Edited by Stephen Alpher.
