Glassnode suggests that the upcoming Bitcoin halving may not reduce the supply that the market expects.

Spot ETFs may not have the same impact as a Bitcoin halving

In a new report, on-chain analytics firm Glassnode discusses the impact of the next Bitcoin halving on cryptocurrency economics.

A “halving” for BTC is a periodic event where its block rewards (the reward miners receive for adding blocks to the network) are permanently halved.

This event is built into the coin’s code, meaning it happens automatically. Halving begins after every 210,000 blocks, or roughly every four years.

The next such event will be held sometime in the next month. Historically, halving has been considered an important phenomenon for an asset because of how it influences its supply dynamics.

Block rewards to miners are the only way to circulate new BTC tokens. As they tighten during these events, the production rate of cryptocurrencies slows down in their wake.

Therefore, halving is considered a bullish phenomenon, as supply-demand dynamics dictate that prices rise due to limited supply.

“However, current market conditions differ from historical norms,” ​​says Glasnod. The reason behind that is simple; Now there’s something that never existed before: spot exchange-traded funds (ETFs).

Spot ETFs are investment vehicles that buy and hold Bitcoin and allow their users to gain indirect exposure to the cryptocurrency’s price action through them. Since spot ETFs are available on traditional exchanges, they may be preferable for those who don’t want to get stuck in digital asset platforms and wallets.

Thus, ETFs have brought significant fresh demand for assets, the supply of which is rapidly leaving the market and entering these funds. To put this demand into perspective, the analyst firm compared the amount of BTC on the chain to the miners’ problem per day.

The trend in the spot ETF flows and miner issuance since the start of the year | Source: Glassnode

As shown in the chart above, Bitcoin ETF flows are generally much higher than what miners are circulating. Based on this, Glassnode believes that “the upcoming halving is expected to reduce supply.”

The report further states:

ETFs, in essence, reverse the halving effect by already tightening the available supply through their substantial and continuous buying activity. In other words, ETFs’ massive Bitcoin acquisitions may already be applying the supply pressure normally expected from a halving.

However, one thing to note is that ETFs are not always guaranteed to be bullish for the market. If the current inflow-heavy regime shifts to one dominated by outflows, cryptocurrencies may naturally witness extraordinary selling pressure.

In fact, spot ETF netflow has now been negative for bitcoin for four consecutive days, so such a trend shift may already be in action.

BTC price

Bitcoin bounced back beyond the $68,000 level yesterday, but the coin has since fallen again, falling to $64,200.

Looks like the price of the asset has has retraced a chunk of its recovery | Source: BTCUSD on TradingView

Featured images from Traxer on charts on Unsplash.com, Glassnode.com, TradingView.com

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