Executive Summary

The research analyzes the market behavior of Bitcoin following its fourth halving on April 19, 2024. Unlike previous halvings, this time resulted in a flat price trajectory and minimal volatility. Our research identifies key factors for this anomaly:

Investor Behavior: Investors are increasingly holding Bitcoin long-term due to factors like high inflation, and interest rates, leading to reduced market activity post-halving.
Bitcoin Ecosystem Maturity: With 94% of Bitcoins mined, the halving has had a less pronounced impact on supply, resulting in a stabilization of prices.
International Politics and Macroeconomics: The ongoing conflict between Russia and Ukraine and the recent reduction in interest rates in the United States have both had a significant impact on market sentiment.

Even though the initial impact of the fourth halving is relatively muted, historical trends indicate the potential for price recovery. The introduction of the Bitcoin Spot ETF may stimulate market growth and create opportunities for other cryptocurrencies, although further data is required to confirm the long-term effects.

1 Background: Understanding BTC's Flat Price Trajectory

As of June 15, 2024, a period of two months had elapsed since the fourth halving of Bitcoin. Previous halvings have had discernible impact on Bitcoin's price, regardless of whether it was surge or decline. However, this time, the fourth halving appears to be different from previous instances. The price of Bitcoin has exhibited a relatively flat trajectory, deviating from earlier forecasts. The volatility observed during this halving was notably less pronounced than that observed during the previous halving. This paper investigates the reasons and factors that might impact the price after the fourth halving.

Figure 1: Bitcoin Daily Price since 2012

Data source: Yahoo Finance

2 Post-Fourth Halving Market: BTC's Price Stabilizes with Calm Trajectory

Following the fourth halving, it becomes evident that the Bitcoin market exhibits a markedly different character from that observed in the previous three halvings. In order to gain insight into the market conditions, we analyzed the main factors of trading volume, Bitcoin price, and macroeconomic factors.

First, we extracted the daily price from each of the halving periods, representing a full year of the halving period. The first three halving exhibited relatively large price changes over a full year, with sharp Bitcoin price fluctuations in the post-halving period. Figure 1 illustrates the price of Bitcoin during the halving years. As the fourth halving concluded just two months ago, the available data is insufficient to support a full year of analysis. However, over the past two months, the impact of the fourth halving has been the weakest of all halvings to date.

Figure 2: Bitcoin Price During Each Halving Event

Data source: Yahoo Finance

In addition to halving events, market sentiment and news also contribute to Bitcoin price volatility. A review of past market conditions reveals that Bitcoin has been a topic of high discussion, leading to high levels of market volatility. In contrast, during the fourth halving, Bitcoin has exhibited a relatively calm and stable price trajectory. Various news stories have also been factors driving Bitcoin price fluctuations, including fluctuations in interest rates, geopolitical events, and other factors. In 2024, the Federal Reserve's stance on rate cuts has shifted. Initially, three rate cuts were anticipated for the year. However, due to persistent inflation, the Fed has revised its projections and now expects only one possible rate cut, potentially in November.

3 Reasons Behind the Market

After a comprehensive analysis of the market situation and technical factors, it can be reasonably concluded that the unusual performance of the market is based on several reasons. These include a shift in investor behavior, the gradual maturation of the Bitcoin ecosystem, and the impact of international politics.

3.1 Investor Behavior

Investor’s behavior in the Bitcoin market has been a significant factor influencing the price of Bitcoin. This behavior, which can be described as "speculative", has been driven by the desire to profit from the cryptocurrency. However, after several external factors, including high inflation, and high interest rates, etc. investors are increasingly looking to hold their Bitcoins for the long term. Bitcoin's resilience, similar to that of gold, allows investors to consider longer-term benefits beyond the short term. The trading volume of Bitcoin indicates that there is a lack of consensus among investors regarding the long-term viability of holding Bitcoin. Institutional investors, in particular, have adopted a more cautious approach. Following the approval of the Bitcoin Spot ETF, most investors were able to invest directly in Bitcoin, suggesting that the market was relatively active before the halving. After the halving, the market has exhibited minimal volatility, suggesting that investors are still awaiting a more opportune investment time.

3.2 The Maturity of the Bitcoin Ecosystem

The maturity of the Bitcoin ecosystem is also contributing to the unexpected of the market following this halving. According to data from Bitbo, the total number of Bitcoins in existence is 19,741,925, with 1,258,075.0 remaining to be mined. This indicates that Bitcoin is currently at 94% of the overall mintage. The number of newly mined bitcoins is relatively insignificant in comparison to the global transaction volume within the Bitcoin ecosystem, which is approximately 450 coins per day. The quantity of issuance represents a negligible proportion of the total volume of on-chain transfers, spot transactions, and derivatives transactions observed in the contemporary Bitcoin ecosystem. Currently, it accounts for less than 0.1% of the aggregate capital transferred and traded daily (The Fourth Halving). Consequently, the impact of the halving of Bitcoin on the supply of available transactions has been diminishing across cycles. This is not only due to fewer Bitcoins being mined but also due to the expansion of the asset size and ecosystem.

3.3 Unstable Political Environment

Lastly, the volatile political environment and some macroeconomic factors have also contributed to the market's subsequent decline following this halving. This year(2024) is significant for the U.S. presidential election. The fact that both Trump and Biden are endorsing the cryptocurrency market from different perspectives is undoubtedly giving the cryptocurrency market a certain amount of emotional turbulence. Conversely, international politics did not fare well during the period of relative stability, with the Russia-Ukraine war and the Israeli-Gaza conflict causing national currencies to continue to fluctuate. In particular, the Russian ruble continued to depreciate in the face of significant economic sanctions imposed by the United States. Additionally, the Federal Reserve's signal to cut interest rates has become increasingly pronounced, and inflation in the United States has been effectively controlled. These developments are likely to impact the cryptocurrency market from an economic perspective.

4 Data Analysis: Evidence and Insight

This section primarily concerns the analysis of price, trading volumes, and other related factors. A data period of 120 natural days is employed, comprising two cases. In the first, the halving date is included within the 120 data points. In the second, the 120 natural days following the halving date are considered. It is important to acknowledge that although the 120-day data set has been utilized, the impact of the halving of Bitcoin may extend beyond that period. It is postulated that the overall market movement over the 120-day timeline will provide a more comprehensive representation of market sentiment and trading volume following each halving than at other times.

For starters, we delved into the 120-day price, which includes the halving date of Bitcoin to analyze the trend of trading. Figure 3 illustrates the Bitcoin price and 14-day exponential moving average in each halving. The price of Bitcoin has exhibited a pronounced pattern of volatility in the period following halvings, with either an immediate surge or decline. Furthermore, this phenomenon was sustained throughout this time frame. Conversely, the fourth halving did not result in a sustained price for Bitcoin. From April 10 to June 10, the Bitcoin price fluctuated between $63,000 and $66,000, exhibiting minimal price fluctuations. This is unprecedented compared to previous halvings. Moreover, the 14-day exponential moving average demonstrated a consistent price trajectory for Bitcoin following the halving.

We also investigated the trading volume of Bitcoin. We visualized, in Figure 4, the trading volume during each halving by using the same period of data, then we found that the number of trades after the fourth halving was the least volatile of all halvings. The volume barely stayed above and below the average trading line. In order to mitigate the impact of noise and facilitate visualization of trading volume following halving, the trading data was extracted for 60 days following each halving event. Figure 5 illustrates that the trading volume of Bitcoin typically declines following a halving, although this decline is not always linear. The fourth halving stands out as a notable exception, exhibiting a more pronounced decline than the previous three instances. Additionally, the subsequent pullbacks were not as pronounced, indicating that the volatility of the change in trading volume after the fourth halving was considerably more pronounced than previously observed.

Figure 3: 120-Day Price Data (Include Halving Day)

Data source: Yahoo Finance

Figure 4: 120-Day Trading Volume(Include Halving Day)

Data source: Yahoo Finance

Figure 5: 60-Day Trading Volume after Halving

Data source: Yahoo Finance

5 Conclusion

The market has exhibited a relatively flat trajectory following the fourth halving. This outcome can be attributed to the improved ecology of the Bitcoin market and investors' assessment of the anticipated trajectory following the halving. However, given the limited data available for two months following the fourth halving, it is not yet possible to make a more precise assessment of the long-term impact. A review of previous halving events reveals that the price of Bitcoin has recovered following each halving. It is therefore anticipated that the fourth halving will adhere to the same principles as previous halvings, although the recovery period is likely to extend until the end of the year or beyond. Additionally, investors are becoming increasingly cautious about investing in Bitcoin compared to before. The introduction of the Bitcoin Spot ETF is expected to stimulate growth in the Bitcoin market, which may eventually lead to saturation. This could potentially provide an opportunity for other cryptocurrencies to experience growth.

Appendix:

UkuriaOC. (2024, 04 23). The Fourth Halving. Retrieved from glassnode insights: https://insights.glassnode.com/the-week-onchain-week-17-2024/

The data source of the following Figures are Yahoo Finance

Figure: 120-Days Price After Halving

Figure: Price Volatility After Halving (120-Days)

Figure: Price Volatility During Each Halving (Full Year)

Figure: Volume Volatility During Each Halving (Full Year)

Figure: Price Volatility After Halving (60-Days)

Figure: Volume Volatility After Halving (60-Days)