Bitcoin’s halving events have historically been some of the most potent bullish catalysts, consistently resulting in hefty price appreciation. The latest halving in April 2024 has not conformed to this model. Instead, Bitcoin has failed to get to the races properly and investors must be asking what’s causing this weakness and what lies ahead. MetaBlock X is here to break down these issues and offer real, actionable strategies for succeeding in this new reality.

In the past, Bitcoin halvings have been positive catalysts for price. The initial halving on November 28, 2012 cut the block reward from 50 BTC to 25 BTC. In much the same manner, the second halving on July 9th, 2016, cut the reward down from 25 BTC to 12.5 BTC. The most recent halving on May 11, 2020 saw the reward cut in half again to 6.25 BTC. In every case, Bitcoin increased significantly prior to the halving event. Afterward, it started to appreciate in value over the next months and years.

The May 2020 halving happening during a time of significant monetary inflation could have increased its effect on Bitcoin’s price. This time, one major factor is the macroeconomic environment. Here’s my take on six factors all coming together to create an environment that will be tough on Bitcoin and has made for a weak post-halving performance.

Macroeconomic Conditions and Bitcoin

Bitcoin’s price action is significantly determined by the larger economic environment. Five macroeconomic headwinds are today pushing down on the cryptocurrency.

One reason, certainly, is the strength of the US dollar. Previous research found that the nominal US dollar exchange rate has an adverse effect on Bitcoin return. A strong dollar pulls in investors looking for a safe haven in times of global uncertainty. Because of this, the demand for riskier assets such as Bitcoin decreases. Treasury yields positively correlate with Bitcoin price. Increased treasury yields can offer a comparable risk-adjusted return to investors, creating competition for dollars that might have otherwise entered Bitcoin.

Economic policy uncertainty (EPU) has a major, but less obvious, role. Studies show that EPU in developed economies, specifically the US, China, and Japan, has a negative impact on Bitcoin’s returns. The EPU impact in these three countries shows that Bitcoin returns are sensitive to EPU, showing a strong reaction to rising EPU. Alternative assets become a popular refuge during economic uncertainty.

Political Uncertainty and Geopolitical Tensions

Outside of economic considerations, political factors are playing a major role in determining why Bitcoin is soaring. Thirdly, geopolitical tensions, including increased tensions between the US and China, can cause uncertainty in the cryptocurrency markets. For example, Bitcoin valuations skyrocketed when civil protests erupted in Hong Kong, demonstrating the cryptocurrency market’s acute reaction to political turmoil.

Regulatory shifts are another key factor. Even draft cryptocurrency regulations put forth by political candidates can cause a knee-jerk reaction in the market. Throughout the 2024 US presidential election cycle, both Bitcoin and Ethereum experienced incredible price volatility. These swings were fueled by changing perceptions on just how crypto-friendly each respective candidate would be on future regulation.

The power of this moment can also make the electoral outcomes hirings. Each time a pro-crypto political victory occurs, investor confidence is further stoked, leading to more investment and price increases. Throughout the campaign leading up to the 2024 US presidential election, Bitcoin reached new all-time highs. It quickly broke US$100,000 as pro-crypto vibes continued to take hold.

Miner Struggles and the Halving Aftermath

Since miners are crucial to the network’s operations, the effects of the halving will be seen by all. The reduction in block rewards from 6.25 BTC to 3.125 BTC has significantly reduced miners' revenue, squeezing their profit margins. This, combined with the rising difficulty of mining, creates stiffer competition between miners and makes it more difficult for them to remain profitable.

The problem is compounded by the extremely fast growing network hash rate. As more miners participate in the network, not only does the overall impermanence of the rewards grow, but the competition raises the bar to earn rewards even further. This collision of increased competition and high costs contribute to a razor-thin margin for miners.

Miners’ have other high costs, such as electricity and hardware expenses. They’re being forced to compete with new industries, particularly AI and high-performance computing (HPC), for available juice. Like a race to the bottom, this cutthroat competition increases costs and squeezes their already thin profitability even further. With the April 2024 halving, many miners suddenly found themselves running on tighter margins. Consequently, they made difficult decisions to merge their companies or otherwise go out of business.

Navigating the Challenging Environment: Actionable Insights

Here are some actionable strategies for investors navigating this environment:

  • Diversification: Diversification can help mitigate risk and enhance returns. Investors should consider spreading their investments across different types of cryptocurrencies and asset classes.
    • Allocate capital across Bitcoin (store of value), Ethereum (smart contracts), and emerging altcoins.
    • Invest in DeFi, NFTs, and Web3 projects.
    • Consider tokenized real-world assets (RWAs) such as real estate, art, and commodities.
  • Passive Income Strategies: Investors can generate passive income through staking and DeFi lending.
    • Staking PoS cryptocurrencies like Ethereum, Solana, or Cardano.
    • Utilizing DeFi lending platforms.

Overall, investors can successfully counteract today’s challenging market environment through prudent diversification. They need to look for ways to earn new income passively to set themselves up for future success. MetaBlock X is committed to providing the insights and tools you need to navigate the digital asset landscape with clarity, confidence, and control.