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Analysts and Bitcoin enthusiasts were keenly watching the possibility of a major supply shock as the Bitcoin network passed through its fourth halves on April 19.
The event is integral to Bitcoin and promises to change the landscape of current supply. It could also have a profound effect on Bitcoin’s price.
Here’s why:
The recent Bitcoin halving has led to a significant increase in the price of bitcoin.
Miners are now limited to a maximum amount of production
Daily 450 BTC.
US Bitcoin Spot ETFs is buying
Average of 3,000 BTC per day.
Hong Kong’s ETFs will soon be launched
trading very soon.
Australia…
Ash Crypto (@Ashcryptoreal). April 22, 2024
Understand the Bitcoin Halving
The reward for mining blocks in Bitcoin is halved every four years. Satoshi Nakamoto designed this mechanism to limit the amount of new Bitcoins that are created.
The reward for mining blocks has dropped from 6,25 BTC to 3,125 BTC after the completion of Bitcoin’s halving. This periodic reduction ensures that Bitcoin is released in a controlled manner, but it also increases its scarcity. It draws a comparison with gold and precious metals.
Bitcoin is currently trading for $67,069 at the time this article is written, which is $3K higher than its immediate price after the halving.
Experts in the industry call this “supply shock” because of the constrained supply due to reduced mining rewards.
Samson Mow is the CEO of JAN3, a bitcoin technology firm. He says that “the halving will be when supply shock really takes hold.” ETFs are slowly draining Bitcoin from the market, but now production will be cut by half.
The imbalance between supply and demand has not only increased volatility, but also caused Bitcoin to surge in price. Bitcoin’s post-halving supply shock can be caused by several factors.
Bitcoin Mining is a More Competitive Business The Bitcoin mining community will be affected by the halving of rewards, as they now get fewer Bitcoins in return for their work. Miners will have to optimize their mining operations in order to remain profitable, which could lead to a shift in the landscape. The mining industry will shift to high-efficiency operations, which are likely to dominate the market.
Reduction in Bitcoin output – A supply-demand mismatch is expected as the daily output of bitcoins has been reduced by half, while institutional purchases continue unabated. Demand from U.S. exchange-traded funds was 5-10 times greater than the supply before the halving. This mismatch may increase to 10-20x after the halving.
The Institutional Demand For Bitcoin Bitcoin’s halving is accompanied by a rise in interest from institutions, including Exchange-Traded Funds, particularly those based in the U.S.A., Hong Kong and Australia. U.S. Bitcoin ETFs such as BlackRock’s and Fidelity’s have been accumulating up to 3,000 BTC per day, which is significantly more than the production rate of 450 BTC.
ETFs are also about to launch in Hong Kong and begin trading. Samson Mow believes that the Hong Kong launch of Bitcoin ETFs will bring in more capital, especially from Asian investors. They are also expected to have in-kind provisions, which allow investments to be converted into bitcoin.
Ash Crypto reported that “Australia has applied for spot Bitcoin ETF”, as another reason to exasperate the imbalance between supply and demand due to growing institutional demand.
Overall…
The halving of Bitcoin as we enter its fifth epoch highlights the currency’s scarcity similar to that of precious metals. Although volatility will be expected over the next few weeks, long-term prospects are bullish due to both the reduced supply of Bitcoin and the increased demand from institutions.
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Nidhi Kolhapur
Nidhi has been a Certified Digital Marketer and devoted crypto journalist covering alternative currencies for over ten years. She is a crypto journalist who shares all the latest news and trends on Cryptocurrency.