Key highlights:Bitcoin is up over 500% 1 year after its first halvingGrowing adoption from institutional investors and corporations helped drive the Bitcoin bull runThe “Bitcoin as digital gold” narrative was helped by aggressive central bank policiesBitcoin gains over 500% in the year after its 3rd halvingToday is one year after the third Bitcoin halving, and the BTC market has certainly performed to the high expectations set by those who viewed the halving as a very bullish milestone. The Bitcoin protocol contains a mechanism in which the reward that miners get in each block is reduced by half. This is called the “halving” and it happens every 210,000 blocks, which translates to around every 4 years (a Bitcoin block is produced roughly every 10 minutes). In the most recent halving, the block reward dropped from 12.5 BTC to 6.25 BTC.Compared to its price at the third halving on May 11 2020, BTC is now up 540%. Bitcoin managed to surpass its old $20,000 all-time high in December last year, and has been posting new ATHs throughout 2021. The current Bitcoin ATH is at just under $65,000 and it was set on April 14. Historically, Bitcoin was a strong performer after its halvings, and this trend is continuing with the third halving. In fact, Bitcoin’s performance 1 year after the third halving is even more impressive than its performance 1 year after the 2nd halving in 2016 (+286%). Here’s a handy chart showing how Bitcoin fared after each of its halvings.
What was behind the Bitcoin rally?Following the halving in May last year, a number factors contributed to a very positive bullish sentiment surrounding Bitcoin. The most obvious trend was the growing acceptance of Bitcoin amongst corporates and institutional investors, which helped Bitcoin gain legitimacy and transition from a niche investment to a trillion-dollar asset class. “Bitcoin as digital gold” has been the overarching narrative investments into Bitcoin, and it was accelerated in a big way because of the COVID-19. To combat the economic slowdown arising from the pandemic, central banks adopted aggressive stimulus policies, and the resulting concerns about inflation and currency debasement provided additional wind to Bitcoin’s sails. Since the Bitcoin halving in May, companies like MicroStrategy, Tesla and Square all made sizeable investments into Bitcoin from their balance sheets, strengthening confidence into BTC as a legitimate investable asset. Even some insurance companies like MassMutual got in on the action.Major banks have also started to warm up to Bitcoin, with multiple banks announcing that they are working on offering cryptocurrency custody and potentially also other crypto-related services – BBVA, Standard Chartered, BNY Mellon are just a few examples. Morgan Stanley plan to give their clients access to 3 different Bitcoin funds, and JPMorgan and Goldman Sachs are reportedly also looking to give clients a way to gain exposure to Bitcoin. The infrastructure for investing in Bitcoin has also been improving dramatically across the globe, which allowed more sophisticated investors to enter the market. Companies that provide cryptocurrency custody and other services like trade execution adapted to the standards expected by institutional investors. Even established names from traditional finance like Fidelity now offer services for cryptocurrency investors (Fidelity Digital Assets).The Grayscale Bitcoin Trust (GBTC) represented one of the main ways for larger investors to gain exposure to Bitcoin in the U.S. market, and its holdings grew from around 332,300 BTC on May 11 last year to around 653,300 BTC now, according to data from The Block’s data dashboard.
New Bitcoin-based exchange-traded products became available in Europe and Bitcoin ETFs are launching in markets like Canada. There’s still some room for growth on this front, as regulators are yet to approve a Bitcoin ETF for the U.S. market, despite attempts from multiple firms. How high could Bitcoin go in its third halving cycle? It’s impossible to predict this accurately, but there’s plenty of reasons to be bullish. Here’s an interesting chart from the Ecoinometrics newsletter that compares the current BTC cycle with the previous halving cycles: