Key Points
- Bitcoin (BTC) continues to grow in demand due to increased retail and institutional adoption.
- The upcoming Bitcoin halving event may further intensify this demand.
Bitcoin’s supply reduction and growing adoption by both retail and institutional investors are driving up demand for the leading cryptocurrency.
The approval of Bitcoin exchange-traded funds (ETFs) in the United States, the largest global equity market, has also contributed to this demand. These ETFs have been breaking records since their launch.
Bitcoin Halving and its Impact
Bitcoin’s halving event, which occurs approximately every four years, is a significant factor in its growth.
This programmed event cuts Bitcoin miners’ rewards by half, meaning miners will need to do the same amount of work for half the BTC reward.
The predictability of this event provides comfort to those in the cryptocurrency world who have experienced previous Bitcoin cycles.
The Economics of Bitcoin
The fundamental law of economics, supply and demand, plays a crucial role in Bitcoin’s value.
Bitcoin has a deflationary issuance schedule, with the halving of new supply every four years, which reduces the supply side.
However, the demand side is not guaranteed. Satoshi Nakamoto and the early Bitcoin adopters left the fate of the demand portion to the free market.
Since Bitcoin’s inception in 2009, its fiat currency price has seen continuous price discovery and retracement.
Speculative assets like Bitcoin have been helped by low interest rates across much of the developed world since the Great Recession of 2008–2009.
However, the U.S. Federal Reserve started raising interest rates in March 2022, which had both positive and negative impacts on Bitcoin’s price.
Despite higher interest rates than at any point in Bitcoin’s existence, Bitcoin’s price currently hovers around $63,000, indicating that other factors are overshadowing the impact of interest rates on BTC’s price.
Bitcoin as a Hedge Against Inflation
One such factor resulting from the halving event is the perception of Bitcoin as a hedge against inflation and a store of value.
These narratives are fueled by the deflationary aspect of regular Bitcoin halvings and promoted by investment experts.
The Bitcoin halving doesn’t necessarily answer the question of demand. If the demand for Bitcoin remains the same and the supply decreases, the fiat value of Bitcoin should rise.
Institutional Adoption of Bitcoin
The recent years have seen an increased interest in Bitcoin from traditional financial institutions.
Some believe that a “Bitcoin Supercycle” would occur once traditional institutions start buying and adopting Bitcoin, causing the price to continuously rise due to the increased demand.
Despite this, not everyone agrees with this sentiment. The U.S.-based spot Bitcoin ETFs from major traditional and crypto native institutional investors have been driving up demand for BTC since their launch in January 2024.
Bitcoin’s Equilibrium
In economics, equilibrium refers to a balance between supply and demand. In reality, this equilibrium is in constant motion, as anyone who has followed the price action of Bitcoin can attest to.
Bitcoin’s halving cycle provides a predictable reduction of new supply, making Bitcoin a deflationary asset. The demand narrative is the variable in the equation, which can be influenced by various factors.
As long as demand remains the same, Bitcoin’s fiat value equilibrium will likely see pressure to climb as the cycles move forward.
In March, Bitcoin broke all previous cycles by hitting a new all-time high (ATH) of $73,900 before the halving event in April.
This has left analysts wondering what this means for the future price of BTC as the halving draws closer.
Speculation surrounds the institutional adoption of Bitcoin and whether this will bring stability to the asset in terms of its purchasing power.
As powerful and prominent as the institutions are, without usage and utility by the masses, price discovery will likely continue through this cycle as it has in the past.
The only certainty is the Bitcoin halving.