One year after Bitcoin’s fourth halving event, Bitcoin is taking a bizarre path—one that has most investors and analysts scratching their heads. Reversals This go around, Bitcoin’s performance has been historically weak compared to other cycles that saw Bitcoin grow exponentially. Therefore, we must carefully look at what is driving them.
Bitcoin’s current trajectory is its weakest post-halving performance so far, said Dessislava Aubert, an analyst at data provider Kaiko. This break from past precedent has led many to question the cryptocurrency’s strength amid currently unfavorable economic circumstances.
Economic Pressures and Market Dynamics
A major factor impacting the performance of Bitcoin is the prevailing interest rate environment. “In a historic macro environment where interest rates have never been this high, we face a treacherous landscape for all risk assets including Bitcoin,” said Aubert.
Furthermore, the anticipated influx of institutional capital following the approval of spot Exchange Traded Funds (ETFs) in January 2024 has not translated into the price surge many expected. In reality, ETFs have attracted swaths of investments amounting to billions of dollars. Aggressive forced sales from miners and fund outflows reacting to geopolitical crises have blunted the bull’s impact. This change in mining rewards from 6.25 to 3.125 BTC per block coincided with Bitcoin’s 2024 halving.
Historical Context and Growth Comparison
As we’ve seen around previous halving events, Bitcoin price has shown strong appreciation in the aftermath. In 2012, after its first halving, Bitcoin went on to a miraculous 8,000% increase over the next year. The next two halvings, in 2016 and 2020, were followed by Bitcoin price increases of 277% and 762%, respectively.
Bitcoin is having a hard time breaking 50% growth post-2024 halving. In January 2024, it came close to $109,000 on speculation that Donald Trump might do the same, undercutting the demand for Bitcoin’s artificial scarcity. Those gains were short-lived. Fears of a coming trade war and erratic economic policies promised by an incoming Trump administration played a role in this decline.
Resilience Amidst Vulnerability
Considering the obstacles that have emerged in 2023, Bitcoin’s halving in 2024 has served to highlight its susceptibility to unexpected shocks, while reinforcing its core durability. In terms of annual growth rate, the current rate of the cryptocurrency’s growth is still quite weak when compared to prior cycles at just 49%. The promised introduction of spot ETFs in January 2024 was expected to bring in a wave of institutional capital, making up for the retreat of retail.
Today’s market dynamics illustrate that it’s not that simple. Many different elements are at play to shape Bitcoin’s price. These factors include compounding macroeconomic conditions, industry or regulatory developments, and geopolitical events.
