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Bitcoin halving could make it rarer than gold

Current dynamics of Bitcoin leave only nine months of supply left on exchanges

The imminent Bitcoin halving this month could make the world’s largest cryptocurrency twice as rare as gold, a new report said.

Bybit, one of the world’s top three crypto exchanges by volume, has released a new report showing that the current dynamics of Bitcoin leave only nine months of supply left on exchanges.

The stock-to-flow (S2F) ratio is calculated by dividing the circulating supply of a commodity by its annual production, yielding a gauge of scarcity, the report says. “Bitcoin’s S2F ratio is around 56 before the upcoming halving, while gold is 60. After the halving in April 2024, Bitcoin’s S2F ratio is projected to double to 112,” the report said.

Post-halving, the Bitcoin supply squeeze is expected to intensify. “Bitcoin reserves in all centralised exchanges have been depleting faster,” the report says. “With only 2 million bitcoins left, if we assume a daily inflow of $500 million to Bitcoin Spot ETFs, the equivalent of around 7,142 bitcoins will leave exchange reserves daily, suggesting that it will only take nine months to consume all of the remaining reserves.”

In the world of cryptocurrency, few events have generated as much buzz as the Bitcoin halving. It’s a moment that could redefine the landscape for investors, miners, and the entire sector.

The fourth Bitcoin halving, which will occur on or around April 20, 2024, reduces mining rewards to 3.125 BTC, reinforcing its deflationary nature by limiting new supply, a report from Seeking Alpha says.

Since the SEC’s historic approval of the first Bitcoin ETFs in January, inflows into the cryptocurrency have topped $12.1 billion. Amidst this whirlwind, the looming Bitcoin halving stands as a pivotal event that could dramatically alter the playing field.

For miners, the halving will is expected to slash rewards, significantly increasing the cost of Bitcoin production. For mining giants like MARA and RIOT, it’s a game-changer, Seeking Alpha says.

Historically, halvings signal a bullish turn for Bitcoin, now more than ever as its supply narrows closer to the cap of 21 million Bitcoins and the deflationary asset gets more popular.

“Bitcoin is becoming the safest investment choice even for the most sophisticated investors in the crypto field,” the Bybit report says. “The price correlation between Bitcoin and the rest of cryptocurrency has been consistently high, and investment in Bitcoin has also been regarded as the cryptocurrency with the lowest beta.”

“Each Bitcoin halving sharpens the narrative of Bitcoin as not just a currency, but a scarce digital asset, akin to digital gold,” stated Ben Zhou, Co-Founder and CEO of Bybit. “This upcoming halving in 2024 will thrust Bitcoin into an era of unprecedented scarcity, making it twice as rare as gold.”

The upcoming fourth Bitcoin halving may not be immediately discernible, there are several second-order effects to consider, according to Manhar Garegrat, country head India & global partnerships at Liminal Custody Solutions.

“Past halvings have often triggered heightened market volatility and increased trading activity. In addition to the potential impacts on altcoins, it’s worth considering the possibility of new products being introduced into the crypto market. Just as spot ETFs are being launched around the world, innovative financial instruments may emerge in response to the dynamics surrounding the Bitcoin halving offering investors alternative avenues for exposure to digital assets” he added.

Historical precedent suggests that the halving could catalyse significant shifts in the crypto market leading to a new all-time high in the coming months, says Shivam Thakral, CEO of BuyUcoin, India’s second-longest-running digital asset exchange.

“Observing previous cycles, we may witness a notable decline in BTC dominance accompanied by a surge in interest and investment in altcoins within 12-18 months of the halving. With each halving, Bitcoin reaffirms its resilience and potential, poised to reshape the financial landscape in the years to come,” he added.

The halving event serves to uphold the scarcity narrative of Bitcoin, a fundamental aspect of its value proposition, stressed Jyotsna Hirdyani, South Asia Head at Bitget.

“As the Bitcoin halving approaches, there’s a palpable sense of anticipation rippling through the crypto industry, with Bitcoin miners strategically depleting their coin stashes ahead of the reduction in per-block rewards. Data shows a decline in miner-held Bitcoin which signals a shift in strategy towards profit-taking and operational upgrades amidst Bitcoin’s recent rally to record highs. Despite this, many anticipate a continuation of the bullish trend leading up to the halving driven by the scarcity narrative inherent to Bitcoin’s design,” she added.

If the cryptospace runs on historical track record then within 10-18 months we can expect Bitcoin surging to new ATHs of $100,000 and more, she said.