Bitcoin, the world's largest cryptocurrency, is experiencing significant volatility as the highly anticipated "halving" event approaches. The halving, which is expected to occur around April 19, will reduce the block reward for miners from 6.25 BTC to 3.125 BTC, effectively cutting Bitcoin's inflation rate in half from approximately 1.7% to 0.85%. This event has the potential to impact the cryptocurrency's price and its status as a store of value.
The market sentiment surrounding the halving has been mixed, with Bitcoin's price fluctuating in recent days. On Monday, the cryptocurrency experienced a jump following Hong Kong's approval of spot Bitcoin ETFs, but it quickly fell again. As of Tuesday morning, Bitcoin had declined by more than 4% in a single day, trading below $63,000. This volatility has spread across the crypto market, with Ether, the second-largest cryptocurrency, trading just above $3,000 after a more than 4% decline in 24 hours, and Solana falling 12% in a day and almost 25% in a week to around $132.
Markus Thielen, the founder of 10X Research, has turned bearish on Bitcoin's price amid fading chances of Fed rate cuts and rising bond yields, according to CoinDesk. This sentiment is reflected in the recent outflows from spot Bitcoin ETFs, which had been driving Bitcoin's price to new heights over the past month. Over the past two days, only BlackRock's iShares Bitcoin Trust (IBIT) has seen inflows, while all other Bitcoin ETFs have experienced zero or lower inflows, as reported by Farside.
The upcoming halving is expected to have a significant impact on Bitcoin's inflation rate and its appeal as a store of value. Many analysts and crypto users believe that Bitcoin could serve as an effective hedge against inflation, particularly in countries with hyperinflation, such as Argentina. As central banks continue to devalue fiat currencies through money printing, Bitcoin's fixed supply of 21 million coins, of which roughly 19.7 million have already been mined, becomes increasingly attractive.
Historically, all Bitcoin halving events have eventually resulted in price increases. Marcos Nunes, CEO of Gnosis Pay, emphasizes the importance of Bitcoin and digital assets beyond their use for payments, stating, "Rather, these assets serve as a lifeline for millions across the globe who live in countries with economic turmoil and hyperinflation."
The greater scarcity following the halving is likely to make Bitcoin's store of value proposition more appealing to crypto users, potentially challenging gold's status as a traditional store of value. While Bitcoin's price volatility is expected to persist in the short term, its inflation rate is projected to drop below that of gold once again, as miners will increase the percentage of the gold supply at a greater rate than crypto miners will increase the percentage of the Bitcoin supply.
According to the Bitcoin white paper, the last BTC block reward could come in the year 2140, more than a century from now. At that point, the incentive for miners is expected to transition entirely to transaction fees, with all 21 million coins mined.
