Key Points
- Bitcoin holders’ current activity suggests a potential growth phase, similar to December 2020, according to Bitfinex analysts.
- Bitcoin exchange reserves are at a multi-year low, with a significant decrease in inactive supply.
Bitcoin holders are exhibiting behaviors reminiscent of December 2020, which may indicate a forthcoming growth phase, as per analysts at Bitfinex.
These analysts have noted a substantial decline in the inactive supply of Bitcoin that hasn’t moved in over a year. This suggests that long-term holders are either reducing their holdings or transferring their assets off-exchange.
Bitcoin Price Dynamics and Exchange Reserves
This week’s halving is fundamental to Bitcoin’s price dynamics. As it draws nearer, there has been a significant increase in Bitcoin leaving centralized exchanges and a decrease in the inactive supply of Bitcoin, hitting an 18-month low.
The actions of Bitcoin holders currently reflect those seen in December 2020, just before a substantial increase in the Bitcoin market. This pattern could mean that we are about to enter a similar growth phase.
The reduction in the supply of Bitcoin held long-term on exchanges, as observed by Bitfinex, aligns with data from CryptoQuant. Charts indicate that Bitcoin exchange reserves have plummeted to their lowest levels ever recorded by CryptoQuant, dating back to early 2021.
In July 2021, Bitcoin exchange reserves were approximately 2.8 million, but have now dropped to around 1.94 million. This suggests a decrease of about 862,000 Bitcoin since CryptoQuant began tracking this metric.
Market Focus Shifts to Halving
Following the sell-off on Monday, the impending halving event has placed the Bitcoin market at a juncture. The Bitfinex report states that after the significant liquidation event over the past two days, which caused prices to drop sharply, there are now signs, including stabilizing funding rates, that traders’ focus has shifted back to the upcoming halving.
However, caution is essential as the halving event incorporates some forward-looking pricing from markets, which might now retract, according to Swarm Markets co-founder Timo Lehes.
“There is still price discovery potential particularly with the addition of geopolitical volatility which has unexpectedly softened prices in the short term,” Lehes stated.
Upcoming Bitcoin Halving Event
Every four years, a mechanism coded into Bitcoin’s blockchain reduces the block reward miners earn by half. This time, each new block of Bitcoin that’s mined roughly every ten minutes will yield 3.125 BTC, down from the current 6.25 BTC block reward.
Based on current estimates, the halving will occur on April 20, 2024, at 03:48 UK time, once the network reaches a block height of 840000.
Historically, many of Bitcoin’s gains have occurred 12 to 18 months after a halving, when the newly diminishing supply met surging demand. For example, at the time of 2020’s halving, one Bitcoin cost less than $10,000. By the peak in 2022, prices had escalated to over $67,000.
This is the first time a halving is following the introduction of spot Bitcoin ETFs and a significant wave of inflows.