The Bitcoin Halving and Market Impact Explained

GM, Anon! Memes such as Wif, Pepe, Floki and others went parabolic this week, AI coins are showing no signs of stopping their upward trajectory, and Ethereum has recently seized the spotlight thanks to the groundbreaking "Dencun" upgrade.  

Post-Dencun, gas fees on some Ethereum L2s have plummeted to as much as 1 cent! If you are active on-chain or farming airdrops, this should be a very welcome upgrade (wen ETH mainnet gas reduction…)

However, let's not forget that an absolutely monumental milestone is looming on the horizon – one that has repeatedly reshaped the very fabric of the crypto universe – the Bitcoin halving. Let’s dive in!

Today, we'll delve into:

• What Is the Bitcoin halving?

• Diving into key metrics on the market and if it's poised for a pullback

• Get going with an Xverse Wallet and use the Runes testnet

• Try out the Botanix Lab’s testnet

• Get involved with the  B² Network testnet

What Is The Bitcoin Halving?

Bitcoin halving events cut the block reward for miners in half, thereby reducing the rate at which new bitcoins are introduced into circulation. This mechanism is fundamental to Bitcoin's economic model, designed to control circulation supply.

The next halving is expected to go down on April 17, 2024. Post-halving, the mining block reward will be halved from 6.25 BTC to 3.125 BTC. So, how will this impact prices?

Historical Impact of Bitcoin Halvings

Historically, Bitcoin halvings have been precursors to notable price increases. This trend is primarily attributed to the anticipation and realization of reduced Bitcoin supply growth, which, coupled with sustained or increasing demand, leads to upward pressure on prices. 

To date, there have been three major Bitcoin halvings:

1. First Halving (November 2012): The block reward was reduced from 50 BTC to 25 BTC. This event was followed by a significant price increase, with Bitcoin's value rising from around $12 to over $1,100 in the following year. However, the market was much smaller and less mature at the time, making it more susceptible to large fluctuations.

2. Second Halving (July 2016): The reward dropped from 25 BTC to 12.5 BTC. Again, the price saw a notable increase in the months following the halving, climbing from approximately $650 to peak at around $2,800 in mid-2017 before continuing to escalate to nearly $20,000 by the year's end, partly fueled by a growing retail and institutional interest in cryptocurrencies.

3. Third Halving (May 2020): This reduced the block reward to 6.25 BTC. The price was around $8,600 at the time of the halving and experienced significant volatility thereafter, crossing $60,000 in April 2021. This rally was attributed to increased institutional adoption, economic uncertainties, and a surge in retail investor interest in cryptos.

Each halving has contributed to a reduction in the rate of new Bitcoin entering circulation, which, in theory, could increase scarcity and drive up the price if demand remains steady or grows. 

How Are Things Looking Pre-Halving?

Whales are picking up BTC

Whales have started accumulating bitcoins. 

Bitcoin's transaction volume has significantly increased to $116.2 billion, up from the usual $10 billion to $20 billion during slower market periods. This increase is mainly due to whales becoming more active, reaching a level of activity last seen in August 2021.

Plus, it looks like users prefer accumulating BTC over ETH.

Miners are selling

Miners are busy pocketing some profits. As per Glassnode, the “miner balance” has dipped from 1.82M bitcoins to 1.808M since the start of the year. 

Market Pullback Or Rally Higher?

The last few months have been nothing short of remarkable. BTC has reached new all-time highs, and the market has been surging across multiple sectors. Can this rally be sustained? Will the music stop, leading to a significant pullback? Let's analyze what the data is telling us.

First, let's gain an understanding of how the market operates. Bitcoin is the dominant force, acting as the tide that either raises or lowers all boats. Thus, it is essential to begin by comprehending key Bitcoin metrics that reveal insights into buyer and seller behavior.

A single indicator represents just one data point, which on its own might not offer much significance. However, when a collection of indicators is analyzed collectively, they can provide valuable insights into the current state of the market. 

The first indicator, examines the cycles of peaks and troughs in bull and bear markets as shown below, and indicates peaks that have traditionally led to pullbacks. While it hasn't reached its utmost extreme range, this trend merits attention.

The following indicator assesses whether both long-term holders and short-term holders are in profit. This aspect is crucial because, at a certain point, one or both of these groups may decide to sell if they collectively consider the current price favorable for selling.

Currently, both cohorts are experiencing extreme profit, with the influx of new money into the market also displaying significant signs. This indicator is now racing to its uppermost point, indicating a critical juncture.

The MVRV Ratio, an abbreviation for Market-Value-to-Realized-Value, compares the current market capitalization of an asset with its realized capitalization, representing the aggregate cost basis or stored value. This metric holds paramount importance in assessing whether an asset's price is over or undervalued, thereby providing valuable insights into overall market profitability. 

At present, the MVRV Ratio is swiftly approaching a critical juncture historically associated with significant market corrections. Furthermore, it has surpassed previous levels indicative of impending downturns.

The BTC Risk Index provides traders and investors with valuable insights into market risks by examining changes in Delta Cap and Market Cap. As Bitcoin's price increases, the index decreases, and conversely, when the price falls, the index rises. Currently, this indicator is approaching its lowest point, signaling a potential correction in the market.

The STH-SOPR aids in deciphering when short-term holders are inclined to either buy or sell cryptocurrencies, offering valuable insights into market trends and potential trading opportunities. Presently, the metric is approaching one of its peak values, indicating a trend of short-term holders selling their assets.

Supply in Profit refers to the total number of coins within a network currently valued higher than their previous transaction. Essentially, it tracks how many coins have increased in value since they were last traded. 

This metric aids in identifying potential market peaks by indicating when investors may begin selling to realize profits. It's important to note that Supply in Profit only shows whether a coin is profitable or not; it doesn't quantify the amount of profit gained. This metric is also reaching its upper most peak. 

In conclusion, the synthesis of key metrics suggests an overbought and extended market scenario. It is imperative for users to exercise caution in the ensuing days and weeks, reducing leverage employment and adhering to spot trading strategies. Historically, crypto pullbacks have been characterized by rapid and severe downturns. While the overarching market trend remains upward, immediate-term metrics present concerning indications.

Bitcoin Ecosystem Updates & Opportunities 

So, now that we’ve covered the upcoming outlook for the Bitcoin market, let’s explore some opportunities for you to get involved. From ordinals to BRC-20 and beyond, the Bitcoin ecosystem is filled with plenty of early stage opportunities which you can profit from. Let’s explore a few.

Runes

The Runes Protocol is a new approach to tokenization on the Bitcoin network, developed by Casey Rodarmor, that aims to revolutionize the process. 

Unlike traditional models such as BRC-20 and ORC-20, Runes uses Bitcoin's UTXO-based system to make the creation and management of tokens simpler. It allows multiple tokens to be stored in a single UTXO, which reduces network congestion and improves efficiency.

Scheduled for launch in late April, Runes has created a buzz among the community, inspiring various projects and initiatives like RSIC and Rune Mania Miner, all designed to capitalize on the market's anticipation for Runes. The launch strategy involves minting the initial ten tokens directly or participating in airdrops through pre-mining projects.

1. Xverse Wallet is making preparations for the launch of the Runes fungible token standard by adding testnet support. 

• Xverse users can now engage with Runes tokens and applications on testnet, with the intention of providing support for mainnet upon deployment. 

• The inclusion of Runes support is a significant stride in accommodating the dynamic landscape of Bitcoin and its accompanying protocols.

• Get an Xverse wallet and follow this handy video guide to start using the Runes testnet.

Bitcoin L2 Solutions

Bitcoin Layer 2 protocols are innovative solutions developed atop the Bitcoin blockchain to tackle its inherent scalability issues. By processing transactions off the primary blockchain, these protocols significantly enhance scalability, speed up transactions, and lower costs. 

Examples of such L2 solutions include the Lightning Network, Rootstock, Stacks, Liquid Network, and various rollups. These technologies not only offer better programmability but also extend the functionalities of Bitcoin. 

Despite facing challenges like potential centralization and routing problems, L2 solutions are pivotal in promoting broader adoption and fostering innovation within the Bitcoin ecosystem. Additionally, many of these protocols are exploring interoperability with the Ethereum Virtual Machine, paving the way for the next wave of innovation.

2. Botanix Labs is developing a decentralized Layer 2 solution on Bitcoin, merging EVM's ease with Bitcoin's security. 

• Users can connect MetaMask wallets to generate Bitcoin deposit addresses, enabling direct transfers from exchanges. 

• It targets both Ethereum Layer 2 users and native Bitcoin users, offering DeFi opportunities. 

• Botanix ensures low fees and prioritizes decentralization. It estimates Bitcoin's DeFi market could be three times larger than Ethereum's.

• Try out the testnet here, and check out this great interview Aylo conducted with their founder, Willen S.

3. The B² Network is another Layer 2 solution for Bitcoin that uses a rollup protocol to guarantee security through a challenge-response mechanism. 

• To ensure security, B² Network utilizes zero-knowledge proofs and Taproot Commitments. Additionally, B² Rollup conducts fraud proof confirmation and supports a decentralized sequencer. 

• With these advancements, B² Network is poised to lead Bitcoin's application scenarios. 

• B² Network facilitates DeFi, NFT, and SocialFi applications within the Bitcoin ecosystem.

• Try out their testnet here.

That’s it for this week, make sure you take this opportunity now than ETH L2 gas fees are cheaper to make some transactions, establish your wallet history and position yourself for what should be a great year of airdrops.