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The Bitcoin halving is a crucial event in the cryptocurrency space that occurs approximately every four years, reducing the reward that miners receive for validating transactions on the Bitcoin network.

As the name suggests, a Bitcoin halving event cuts the rewards in half for miners mining Bitcoin blocks that add transactions to the Bitcoin ledger. The process is hard-coded into the Bitcoin protocol to control its supply and retain its scarcity and limited supply status. 

The Bitcoin halving is crucial for traders due to its direct impact on Bitcoin and its market supply and, consequently, the price dynamics in the broader cryptocurrency market.

In this article I would like to share on how we can planned our trades for crypto stocks and ETFs. This is especially we have experienced short rally in crypto stocks and Spot Bitcoin ETFs when Bitcoin keep clearing higher level.

What is the Bitcoin halving?

Bitcoin operates on a decentralized network of computers known as nodes. Bitcoin mining is the process of creating valid blocks that add transaction records to Bitcoin’s public, decentralized ledger. Miners are individuals or entities that play a crucial role in securing and validating transactions on the Bitcoin blockchain. In return for their efforts, miners are rewarded with newly created Bitcoin.

Bitcoin mining uses hardware to solve complex mathematical problems, which validate and secure transactions on the network. Miners use computational power and compete to solve these puzzles, and the first one to solve it gets to add a new block of transactions to the blockchain.

The Bitcoin halving refers to the reduction in the reward given to miners for solving complex mathematical problems and validating transactions on the Bitcoin blockchain. It is a mechanism built into the Bitcoin protocol by Satoshi Nakamoto, the creator of Bitcoin, and it occurs roughly every four years (or every 210,000 blocks).

During this event, miner rewards for successfully adding a new block to the blockchain are cut in half. For the broader crypto market, halvings reduce the supply of new Bitcoin entering the market.

Initially, miners received 50 Bitcoin as a reward for each block they added to the blockchain when Bitcoin was first launched. At the first halving, the reward fell to 25 Bitcoin, and subsequent halvings in 2016 and 2020 decreased the reward to 12.5 and 6.25 BTC, respectively. In April 2024, it will drop to 3.125 BTC, and the process will continue until all 21 million Bitcoin are mined.

Reducing mining rewards controls the issuance of new Bitcoin and mimics the scarcity characteristics of precious metals like gold. Bitcoin’s supply is capped at 21 million, and by making it progressively harder and more resource-intensive to mine new BTC, the issuance rate slows down, creating scarcity and potentially driving up the value of each Bitcoin.

What Is a Spot Bitcoin ETF?

Spot Bitcoin ETF are a type of security that tracks the underlying performance of a collection of assets or commodities. A spot bitcoin ETF is an exchange-traded fund that tracks the spot, or current price of bitcoin. By holding an equivalent amount of bitcoin to back every share of the ETF that is sold, the fund is actually backed by bitcoin itself.

This helps investor to eliminate the different medium they have to go through for Bitcoin investment, a spot bitcoin ETF is one of the easiest ways to add bitcoin exposure to your portfolio. This allow for shares of the fund to be created or redeemed based on market demand.

How Do Spot Bitcoin ETFs Work?

Spot bitcoin ETFs purchase a select amount of bitcoins that are held in a secure digital wallet by a custodian. These custodians offer bitcoin storage in a secure vault. Most of these vaults are—as crypto insiders call—air gapped in “cold storage,” which means the bitcoins’ keys are stored offline and cannot be accessed through the internet.

This is important when Bitcoin halving happen, because the amount of bitcoins to be purchased might cost more when Bitcoin to be mined is reduced.

The ETFs then issue shares that represent the bitcoins held by the fund. These shares are priced to reflect the current spot price of bitcoin and can be traded on traditional stock exchanges.

We could see ETFs pricing the shares higher to reflect Bitcoin price, so we could be expecting a Bitcoin rally when halving happen.

Here are some of the more active and personally think have potential Spot Blockchain ETF: $iShares Bitcoin Trust(IBIT)$ $ARK 21Shares Bitcoin ETF(ARKB)$

The 2024 Bitcoin halving

The likely date for the next halving would be in April 2024, aligning closely with the historical four-year cycle. The final halving is predicted to occur in the year 2140, when the number of BTC circulating will reach its maximum supply of 21 million. At this point, no more new Bitcoin will be mined.

The Bitcoin halving is designed to be somewhat predictable to avoid causing significant disruptions to the network. Despite this, the lead-up to and aftermath of a halving often sees heightened volatility in the price of Bitcoin.

What is the historical impact of the Bitcoin halving?

The price trends from historical data and fundamental analysis show that Bitcoin halvings tend to impact the price of Bitcoin favorably. The halving events typically instill optimism and a bullish trend in the cryptocurrency markets, translating into positive price movements.

We could be seeing a Bitcoin rally due to positive momentum. This can be attributed to various factors, primarily economic demand-supply dynamics. The decrease in Bitcoin’s supply issuance makes it more scarce, boosting demand and driving up its value.

Attention will be drawn to the cryptocurrency space, changing investor behavior, attracting new investors and promoting fear of missing out (FOMO), there would be higher and more engagement which could drive the price of Bitcoin higher with increased trading activity.

But we need to remember that there might be a positive correlation between halving events and price increases, this is not guaranteed, and we, as investors should do our own research to understand the price trends during each halving.

Consistent trends have become evident in price analysis during each Bitcoin halving. In 2016, the value of BTC stood at $665 before halving, surging to $2,250 a year later.

The halving in 2020 occurred in May when Bitcoin was priced at $8,740. By the end of that same year, BTC had soared to $29,000. Therefore, since a bullish market trend has typically followed each previous Bitcoin halving cycle, forecasts suggest the 2024 cycle will be no different.

Market volatility and trading opportunities during the Bitcoin halving

The anticipation and occurrence of a Bitcoin halving event are often accompanied by increased market volatility. This historical volatility creates both challenges and opportunities for traders. While the uncertainty may pose risks, it also opens avenues for strategic trading, especially for those adept at navigating price swings.

If you have been following the price trends of crypto stocks like $Marathon Digital Holdings Inc(MARA)$ and $MicroStrategy(MSTR)$ , these 2 stocks have benefitted from the Bitcoin price upside.

Something we need to understand is mining might not be so profitable, but looking at how MARA have been storing the Bitcoin, we could see that MARA might move into trading Bitcoin on top of its mining. MSTR have been loading up Bitcoin, so we could see that their holdings would be pretty significant as Bitcoin is poised to go up in price.

Use Technical Analysis To Detect Signal

We should follow the prevailing trend in the lead-up to and after the halving, either to go long in a bullish trend or short in a bearish trend. We should also identify key resistance or support levels to execute trades when the price breaks out of these levels.

Breakouts can help signify potential trend reversals or the continuation of an existing trend. Support levels are price levels where the Bitcoin price may stop falling, and resistance levels are where it tends to halt its upward movement.

Using technical analysis tools like trendlines, moving averages or horizontal support and resistance lines, waiting for the price to break decisively above a resistance level or below a support level, we could identify the support and resistance level.

The breakout is confirmed when the price closes above or below the identified level, signaling a potential shift in market sentiment.

If we look at how the crypto stocks and ETFs have moved with Bitcoin, the correlation is pretty positive and close.

Summary

I would think it is time for us to get ready our trading strategies for trading crypto stocks and ETFs, as there should be some positive upside, this halving might be different from previous, as we have many products evolve out from Bitcoin.

So as investors, we should understand how Bitcoin would move and take advantage of those underlying crypto stocks and ETFs.

Appreciate if you could share your thoughts in the comment section whether you would be considering getting a strategy ready to trade the Bitcoin halving?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.