By Joe Light
The pace that new Bitcoin is created is about to fall by half, a change that in the past has led to massive rallies in the cryptocurrency's price. But if history is any guide, that won't lead to a strong uptick in trading activity on trading platforms like Coinbase Global or Robinhood Markets.
On Friday, Bitcoin is expected to undergo its "halving" event, which will slice the amount of coins that miners receive for validating transactions to 3.125 from 6.25 currently. The halving occurs programmatically and its approximate date has been known for years. Still, in the months after prior halvings, the oldest cryptocurrency's price has rallied significantly.
One might think that such excitement around the halving would lead to increased trading activity on platforms like Coinbase and Robinhood. However, at least in prior events, that hasn't been the case, according to Needham & Co. analyst John Todaro. For example, in May 2020, when the last halving occurred, Coinbase only saw a small uptick in volume.
"We expect a modest bump in volume this week, but believe it will be overshadowed by other high volume events," Todaro wrote in a research note Tuesday.
So what will matter? Todaro points to the Israel-Iran conflict, which over the weekend helped lead to a temporary crash in Bitcoin prices. Continued flare-ups in the Middle East or other events that harm risk assets, like increasing interest rates, are likely to have the strongest impact on Bitcoin prices, and by extension, on crypto trading volume.
Robinhood didn't immediately respond to a request for comment.
A Coinbase spokeswoman referred a request for comment to articles written by the company's research team. The Coinbase team cautioned against drawing conclusions about Bitcoin's price based on prior halving events, and said that other factors could drive Bitcoin's price higher in the long term.
Coinbase stock this year is up 21% to $211, while Robinhood has risen 33% to $17.15. Both stocks have suffered in the past couple of weeks after the most recent report on consumer inflation showed prices are still likely rising too fast for the Federal Reserve to consider cutting interest rates.
Bitcoin itself it still up 47% on the year to $62,400, supported by the January approval of exchange-traded funds that hold spot Bitcoin. This past weekend, the cryptocurrency fell below $60,000 on news that Iran had launched an attack against Israel, though prices partially recovered.
Friday's expected halving event is supposed to be the cryptocurrency's next driver. With fewer Bitcoin being issued, the theory goes, a steady level of demand will squeeze prices higher. The coins did see price increases after the prior halvings in 2020, 2016, and 2012.
But the evidence that the halving itself is responsible for the price increases is highly circumstantial. The 2020 halving, Todaro noted, came during the Covid-19 crisis, when the Federal Reserve and then Congress provided extraordinary stimulus to prop up the economy. That summer also saw an explosion in blockchain-related projects that helped prop up token prices and led to increased activity on Coinbase.
This time around, the biggest bull signal for Bitcoin and other tokens -- the approval of the ETFs -- is already in the rearview mirror.
Other events, like a signal that interest-rate cuts are near, could end up boosting trading volumes this year. But the halving itself probably isn't a bull signal for Coinbase or Robinhood.
Write to Joe Light at joe.light@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 16, 2024 12:06 ET (16:06 GMT)
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