Countdown to Bitcoin Halving: What You Need to Know

GM anon!

As you may know, the Bitcoin halving is just around the corner. As per the current block generation rate, the halving is set for 19 April 2024, 12:38 UTC.

Bitcoin halving events reduce the block reward for miners by half, which slows down the introduction of new bitcoins into circulation. 

This is a core component of Bitcoin's economic structure, intended to regulate the supply in circulation. After the latest halving, the reward for mining a block drops from 6.25 BTC to 3.125 BTC. 

Analyzing the BTC Pre-halving 🌓

Over the last few weeks, we have shown you the basics of technical analysis (read about it here and here).

Let’s use the same concept and metrics to analyze BTC pre-halving. We are going to analyze the BTC/USD daily chart.

As you can see, the bears have definitely taken over the market prior to the halving. Between April 11 and April 13, the bears had three consecutive bearish sessions, wherein the price dropped from $70,650 to $64,000, dropping below the $70,000 and $65,000 psychological levels.

On the downside, we have a strong support wall around $61,000. Previously, ~638,000 addresses had purchased ~402,000 BTC at this zone. 

If the bears break below this level, the price could drop to $57,000 before the sellers face another formidable support zone.

However, going back to the daily chart, the price has broken below the 20-day Bollinger Band, and the moving average convergence/divergence (MACD) indicates growing bearish momentum.

All these indicators suggest that BTC can potentially break below the $60,000 psychological level prior to the halving.

Macroeconomic Factors Influencing Bitcoin Price 🌐📰

As they say, “macro is King.”

BitMEX co-founder Arthur Hayes laid out several potential macroeconomic factors that are affecting Bitcoin’s price. Let’s go through some of the reasons.

Bank Term Funding Program (BTFP) Cessation 💳

The Bank Term Funding Program (BTFP) is an emergency financial initiative launched by the Federal Reserve in March 2023. 

Its purpose is to provide additional resources to qualified depository institutions, ensuring that banks can fulfil the requirements of all their depositors and support American businesses and households. 

The idea was to provide liquidity to businesses and help them get back on their feet following the pandemic. On March 12, 2024, the BTFP officially ended. 

Many believe that a significant sell-off could occur following the conclusion of this program, which had given businesses and individuals easy access to liquidity.

Discount Windows 🈹

A “Discount Window” is a central bank lending facility meant to help banks manage short-term liquidity needs. Banks use discount windows to maintain liquidity without declaring bankruptcy. 

While the discount window directly impacts the liquidity and solvency of banks, its indirect effects on market sentiment, risk appetite, interest rates, inflation, and regulatory outlook can influence the attractiveness and price of Bitcoin and other cryptocurrencies.

Here are some ways Discount Windows can affect prices 👇

Capital Requirements and Regulatory Changes 🪙⚖️

Capital requirements are regulatory standards that determine how much capital banks must hold against their assets, like government bonds. These rules aim to ensure that banks have enough cushion to absorb losses during economic downturns without failing.

Changes in bank capital requirements and the regulatory environment, such as the potential relaxation of the Supplemental Leverage Ratio (SLR) for US Treasuries, influence the banking sector's ability to purchase government bonds and manage liquidity. 

These changes can indirectly affect the financial markets, including cryptocurrencies like Bitcoin.

Quantitative Tightening (QT) Program 👤💰

The Federal Reserve's QT program, which involves reducing the balance sheet by letting bonds mature without reinvestment, directly impacts the liquidity in the financial system. The pace and adjustments in the QT program can influence dollar liquidity, subsequently affecting Bitcoin prices.

The Tax Impact 🧾

Tax is due today!

As liquidity gets removed from the market, the financial system as individuals and corporations liquidate assets to cover their tax liabilities. This reduction in liquidity can impact asset prices, including Bitcoin.

Historically speaking, the BTC price had gone down around 15th April 2023, 2022, and 2021.

Now that we have you caught up on the events surrounding the pre-halving and current major macroeconomic factors, let’s take a look at how markets typically react to war in light of the events that took place over the weekend.

War Is Good Business (don’t shoot the messenger)🕊️

Wars are arguably among the most turbulent and destructive events, capable of altering the entire course and trajectory of entire regions across various human domains. This includes financial markets, as the charts we observe on our screens reflect human output and energy across every sector we analyze.

Announcements of war or attacks typically trigger market panic, often resulting in significant sell-off events, as witnessed over the weekend. However, do these events have a long-term impact on the markets? Do we witness an immediate and sustained decline? And finally, how would a major conflict impact the crypto sphere? Let's delve deeper.

Wars & Markets 🪖

As global tensions rise due to conflicts like those between Hamas and Israel, Russia and Ukraine, and the nuclear threats from Iran and North Korea, the economy and stock markets face significant challenges. Despite war and defense spending constituting a notable portion of the US GDP, historical trends show that wars often have limited sustained impacts on stock markets or domestic economic growth. 

While conflicts may initially trigger market uncertainty and sell-offs, stock markets have generally demonstrated resilience over time, rebounding as situations stabilize or the scope of conflicts becomes clearer.

Historical examples, such as the aftermath of the U.S. airstrike that killed Iranian general Qasem Soleimani and Russia's invasion of Ukraine, highlight initial market downturns followed by recoveries within weeks. Even conflicts in the Middle East, like the recent violence between Israel and Palestinian militants, have seen brief market declines followed by subsequent rebounds. 

Despite ongoing geopolitical tensions, investors have often remained relatively calm, with markets learning to discount such events over time. However, broader regional conflicts could potentially have more severe impacts, particularly on oil and commodity prices. Interruptions to oil markets, especially from key producers like Russia, could lead to higher energy prices and shipping congestion, affecting global markets. 

Despite these potential challenges, stock markets have historically remained resilient through wars, benefiting from increased industrial production and technological advancements driven by military needs.

In terms of stock performance during wartime, defense companies and energy firms often fare well, with some sectors experiencing boosts from higher commodity prices. Historical data from World War I and World War II shows initial market downturns followed by recoveries and even growth during wartime periods. 

We observe that despite pronounced market downturns following announcements, rapid periods of recovery often ensue. However, it's crucial to avoid excessive leverage during such periods, as it can lead to swift liquidation of positions amid volatile market movements. If opting to trade with leverage during times of global uncertainty, it's advisable to employ low leverage or thoroughly understand market reactions before considering leverage exceeding 2-3x.

Overall, while geopolitical conflicts can create short-term market volatility, investors have generally adopted a pragmatic approach, focusing on quality trades and maintaining diversified portfolios amidst uncertainty.

Now let’s take a look at factors surrounding crypto☮️ and war.

Crypto, The Perfect Wartime Currency? 🪙

During periods of geopolitical unrest, crypto plays a pivotal role by offering unique financial opportunities and resources. This was particularly evident during the Ukraine conflict, where cryptocurrencies significantly supported the country's war efforts. 

Crypto donations, worth hundreds of millions of dollars, not only provided a rapid and decentralized method to channel funds into the war zone but also facilitated the purchase of critical supplies ranging from bulletproof vests to medical equipment.

The transformative power of digital currencies during such times is underscored by their ability to mobilize resources swiftly. As noted by experts, this rapid mobilization has made crypto a crucial tool in conflict zones, enabling support to reach where it is needed most promptly. The decentralized nature of these currencies ensures that aid can be delivered without the bureaucratic delays typical of traditional financial systems, thereby enhancing the efficiency of humanitarian efforts.

The benefits of crypto extend significantly to users, especially during periods of economic uncertainty and market volatility. Designed to operate independently of traditional financial institutions, crypto offers a robust alternative during financial crises. 

This inherent design allows for operations outside the typical constraints and vulnerabilities of the standard banking system, providing a safer haven for assets when traditional markets are fluctuating. For users, this means access to a financial system that not only remains operational in times of global instability but also preserves the value of their assets against inflation or currency devaluation. 

Furthermore, the global nature of cryptocurrencies ensures that they are accessible from anywhere, without the need for intermediaries, which can be critical in situations where local banking systems are compromised or inaccessible.

Cryptocurrencies were fundamentally designed to withstand and operate amidst such volatility, offering a decentralized and secure platform for transactions and savings. While traditional banking systems can be hampered by local economic conditions, regulatory challenges, or even direct conflict impacts, cryptocurrencies provide a resilient and continuous service.

Users can manage their finances with full control and minimal external influence, which is often not possible with traditional banks during crises. This autonomy and security make cryptocurrencies an appealing option for those looking to maintain financial stability in uncertain times.

So, if you find yourself in a region experiencing conflict or are concerned about a potential global conflict, crypto might just be the best asset to hold over all others.

Don't panic-sell your bags 👎

In essence, market volatility is an integral component of trading. It's essential to resist the urge to react impulsively when events like these impact the market. Instead, exercising patience and making decisions devoid of heightened emotions is key. As history shows, such events typically result in significant rebounds.

Furthermore, it's crucial to acknowledge that periods of wartime often coincide with increased money printing. This injection of liquidity into the economy can have a positive effect on asset values. Therefore, during such times, it's wise to take a step back from the screen and allow the market to stabilize naturally. Basically, HODL!

That’s all for today anon! 🤝🏼

PS: On Wednesday, we have a special edition in store for you. We'll delve into everything concerning Runes, exploring how you can benefit from this momentous occasion. Additionally, we'll highlight some key collections, encompassing both ordinals and BRC-20 collections. These insights will empower you to maximize the potential of the rune drops occurring during the halving. Don't miss out on this edition!