Goldman Sachs recently advised clients against relying on historical data from previous Bitcoin halving cycles due to changes in the macroeconomic landscape. Every four years, the halving event occurs where the per-block Bitcoin emissions are cut in half. The upcoming halving will see rewards decrease to 3.125 BTC from 6.25 BTC, creating artificial scarcity and potentially increasing demand. While previous halving events have led to significant price rallies, Goldman Sachs warns that current macroeconomic conditions, such as high inflation and interest rates, could impact the outcome of this cycle.
The major central banks have seen a rapid increase in the M2 money supply, leading to interest rates remaining at or below zero in the developed world. This has encouraged risk-taking across financial markets, including cryptocurrencies. However, current interest rates in the US are above 5%, with hopes of rate cuts fading. Traders estimate a low probability of rate cuts in the near future. Despite the bearish outlook, Goldman Sachs remains optimistic, stating that the halving event serves as a psychological reminder of Bitcoin’s capped supply. The medium-term outlook will likely be determined by the adoption of Bitcoin ETFs.
Historically, the halving event has been positive for Bitcoin’s price in the long term, with significant price increases in the years following previous halving events. However, in the short term, the price has shown mixed results immediately following the halving. Some analysts believe that the majority of the typical post-halving surge has already occurred, leading to a possible “buy the rumor, sell the news” scenario after the halving on April 20. The slowing growth in Bitcoin ETFs supports this theory, with ETF flows losing momentum as of April.
Goldman Sachs believes that continued demand for Bitcoin ETFs, combined with the self-reflexive nature of crypto markets, will be the primary driver of Bitcoin price performance in the coming months. US-based Bitcoin spot exchange-traded funds have seen a significant increase in the last six months, with 11 spot-based ETFs now holding $59.2 billion in assets under management. While they have experienced inflows since the SEC approved spot Bitcoin ETFs in January, momentum has slowed as of April. This loss of momentum may be due to initial novelty hype, with ETF flows running out unless prices continue to increase.
Despite the skepticism surrounding the impact of the halving event on Bitcoin’s price, Goldman Sachs remains hopeful about the future of cryptocurrencies. They emphasize that the halving event is a reminder to investors of Bitcoin’s limited supply, and that the adoption of Bitcoin ETFs will play a crucial role in determining the medium-term price action. While the current macroeconomic conditions differ from those of previous halvings, Goldman Sachs believes that continued demand for Bitcoin ETFs and the self-reflexive nature of crypto markets will be key factors in driving price performance in the coming months.
