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During moments of uncertainty in markets, it is natural to feel stressed about your investments. However, it is important to take a step back and reflect on the long-term fundamentals of your particular investment thesis. From an economic perspective, it is crucial to understand the supply and demand dynamics that drive market movements.
Focusing on these fundamentals, you can better navigate through volatile market conditions and make informed investment decisions and remember, staying informed and focused on long-term goals can help you weather the storms of market uncertainty.
With all this said, let us have a look at current Bitcoin supply and demand and the impact the halving has had in the past and will have in the future.
Supply / Demand dynamics
Supply and demand dynamics refer to the relationship between the availability of a product or service (supply) and the desire for that product or service (demand). When supply is low and demand is high, prices typically increase. Conversely, when supply is high and demand is low, prices tend to decrease.
Demand
On the Monday and Tuesday following the halving (*) which took place on the 20 April 2024 (19th April if you were in US), there have been $64.2m and $65.5m inflows into Spot Bitcoin ETFs respectively. At an average price $66k per BTC, that’s about 970BTC daily flowing into the ETFs - this is your daily Spot Bitcoin ETF demand.
Point to note here is that this excludes all other demand from the Hodlers who have been accumulating for the last 4 epochs, all private and public businesses adding BTC to their corporate treasuries and lastly it also excludes some nation states who are adding BTC to their reserve assets (and I wonder how many more are doing this without disclosing the fact?).
Supply
Looking at the supply side now, if a block is mined every 10min, we will have approx. 6 blocks per hour, which is 144 blocks per day.
This means that at the new mining subsidy of 3.125BTC, there are approximately 450BTC coming onto the market each day post halving. Your mining supply is therefore 450BTC daily.
The Spot Bitcoin ETF in the first few days after the halving, with negative price action, has accumulated more that 2x as much BTC than what was mined in each day. Here are the calculations when you divide the daily Spot Bitcoin ETF demand by the daily Bitcoin mined:
Monday ~970BTC/~450BTC=2.15
Tuesday ~990BTC/~450BTC=2.2
As of Tuesday 23rd April 2024, BlackRock's IBIT Spot Bitcoin ETF had 70 consecutive inflow days and to date approximately 4% of all Bitcoin has been accumulated in the ETFs. Both charts above are from The Block and are handy metrics to keep an eye on.
Halvings
(*) The halving refers to the 50% reduction in the block subsidy every 210,000 blocks (roughly every four years), and is a key event in the implementation of Bitcoin’s programmatic monetary policy.
“Rules, Not Rulers”
At 1:09am on 20th April 2024 UTC, Bitcoin’s 840,000th block was mined and we concluded the 4th epoch - happy birthday TS and RD, lets not mention who else was born on this day!
The recent halving saw the subsidy reduced from 6.25BTC to 3.125BTC per block and looking back over historical halvings, let’s see what Bitcoin traded at through the halvings:
Epoch 1 ending November 28, 2012: $12.5
Epoch 2 ending July 9, 2016: $638
Epoch 3 ending May 11, 2020: $8.5k
Epoch 4 ending April 20, 2024: $61k
With the last reduction in the block subsidy, the inflation rate for Bitcoin now drops from 1.7% to 0.85%, making it the hardest money on earth and overtaking gold to the number one spot. Gold’s long-term annual supply increase is approximately 1.7%. With Bitcoin going from strength to strength there are 2 things to note when analysing the epochs. Price performance (although still spectacular) is declining and the maximum drawdowns are getting smaller too. Here is the data from Glassnode:
Epoch 2 Price Performance: +5315% with a max drawdown of -85%
Epoch 3 Price Performance: +1336% with a max drawdown of -83%
Epoch 4 Price Performance: +569% with a max drawdown of -77%
The good news is that the halving has historically led the bull market and the average increase in the year following the last couple of halvings, Bitcoin has appreciated over 270%.
From the charts above, does it look like the “ETF Crowd” are going anywhere?
What will all the other demand be doing?
Is the next halving in 4 years priced in yet?
In our last Rational Active Allocation strategy update, we were waiting for a Bitcoin pull back. With answers to some of the the questions above and the recent geo-political event, we were given the opportunity to pivot from our gold proxy allocation and we were able to accumulate more Bitcoin.
If you are not ready to hold Bitcoin yourself, an option while you “Study Bitcoin”, is to follow our "platform verified” strategy - Rational Active Allocation. You can do so with as little as £20 per month, knowing that every allocation update we make to accumulate more Bitcoin will be replicated for you. This is a custodial solution aimed at those just starting their Bitcoin journey.
DISCLAIMER
This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please also note our disclosure here
