June 4, 2024
Bitcoin Navigating Towards a Supply Shock Amid Halving and Soaring ETF Demand
Bitcoin Halving

Bitcoin: Navigating Towards a Supply Shock Amid Halving and Soaring ETF Demand

Bitcoin stands at the brink of a significant supply shock, propelled by two pivotal developments: the imminent halving scheduled for April and a recent surge in demand fueled by the approval of Bitcoin exchange-traded funds (ETFs).

The Bitcoin halving, occurring every four years, slashes the block reward for miners by half, resulting in a substantial reduction in the new supply of Bitcoin entering the market. As the next halving approaches in a matter of months, the supply is poised to plummet even as demand continues to escalate.

This escalating demand is predominantly originating from institutional investors through Bitcoin ETFs. Major ETF providers like BlackRock have swiftly acquired over $4.3 billion worth of Bitcoin within just seven days via these funds, as reported by Bloomberg analyst Eric Balchunas. The accumulation of more than 112,000 BTC in a short span underscores the growing interest among institutions in gaining exposure to Bitcoin.

The convergence of increasing demand and diminishing supply sets the stage for a potential supply shock. On-chain data from Blockware’s Mitchell Askew indicates that over 70% of Bitcoin has remained inactive for over a year, signaling restricted sell-side liquidity.

Askew suggests that the fresh demand from ETFs will gradually be absorbed by the “incredible supply-side illiquidity,” potentially leading to heightened competition for the limited available Bitcoin and consequently driving its price upwards.

However, the actualization of a supply shock hinges on various factors, including potential price fluctuations, regulatory changes, and shifts in overall demand.

Despite the anticipation, Bitcoin’s price experienced a period of stagnation during the initial week of spot ETF trading. At present, Bitcoin is hovering around $39,500, reflecting a decrease of over 7% in the past seven days, according to data from CoinGecko.

Image by Miloslav Hamřík from Pixabay

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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