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Glassnode has suggested that the upcoming Bitcoin halving might not result in a supply squeeze that the market may have anticipated.
Bitcoin Halving May Not Carry Same Impact Due To Spot ETFs
In a new report, the on-chain analytics firm Glassnode has discussed the impact the next Bitcoin halving may have on the economics of the cryptocurrency.
The “halving” is a periodic event for BTC where its block rewards (the rewards the miners receive for adding blocks on the network) are permanently cut in half.
This event is built into the coin’s code, meaning it happens automatically. The halving kicks in after every 210,000 blocks, or approximately every four years.
The next such event will take place sometime in the coming month. Historically, the halving has been considered an important event for the asset due to how it influences its supply dynamics.
The block rewards the miners receive are the only way to introduce new BTC tokens into circulation. Since they get tightened during these events, the cryptocurrency’s production rate slows down following them.
As such, halvings are considered bullish events, with the price increasing following them due to the constrained supply, as supply-demand dynamics would dictate.
“However, the current market conditions differ from historical norms,” says Glassnode. The reason behind that is simple; there is something now that was never there 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. Since the spot ETFs are available on traditional exchanges, they can be preferable for those not looking to dabble with digital asset platforms and wallets.
Thus, the ETFs have introduced a notable amount of fresh demand for the asset, with supply rapidly leaving the market and entering these funds. To put this demand into perspective, the analytics firm has compared it against the BTC amount miners issue on the chain daily.
The trend in the spot ETF flows and miner issuance since the start of the year | Source: Glassnode
As the above chart shows, the Bitcoin ETF flows have generally been much higher than what the miners have been introducing into circulation. Based on this, Glassnode believes “the upcoming halving might not result in the supply squeeze once anticipated.”
The report further says:
The ETFs are, in essence, preempting the halving’s impact by already tightening the available supply through their substantial and continuous buying activity. In other words, the supply squeeze usually expected from halvings may already be in effect due to ETFs’ large-scale bitcoin acquisitions.
Something to note, however, is that the ETFs aren’t certain to always be a bullish influence for the market. Should the current inflow-heavy regime flip to one dominated by outflows, the cryptocurrency could naturally witness extraordinary selling pressure.
In fact, the spot ETF netflows have been negative for Bitcoin for four straight days now, so such a trend shift may already be in action.
BTC Price
Bitcoin had recovered beyond the $68,000 level yesterday, but the coin has since declined again, falling back towards $64,200.
Looks like the price of the asset has has retraced a chunk of its recovery | Source: BTCUSD on TradingView
