Understanding Post-Halving Market Dynamics

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On April 20, 2024, Bitcoin underwent its fourth halving, a recurring event every four years that slashes the miners’ block reward by 50%. The latest halving reduced the reward from 6.25 BTC to 3.125 BTC per block. Consequently, Bitcoin’s annual inflation rate has declined to about 0.85%. By contrast, gold’s long-term supply growth is around 2.3%, making Bitcoin increasingly scarce in comparison, thus enhancing its status as ‘digital gold’ for some investors.

Market Reactions to the Halving

The market’s immediate response to the halving was varied. Bitcoin’s price remained stable around the $60K mark, neither surging to new highs nor experiencing sharp falls.

Meanwhile, transaction fees experienced a significant increase due to heightened demand for block space, driven partly by new protocols like Runes, which use Bitcoin’s block space to issue fungible tokens. This shift moved a considerable part of the miners’ income from block rewards to transaction fees, marking an important shift in the mining economy after the halving. These developments highlight the increasing importance of monitoring transaction fees, which have become a more central component of the ecosystem.

Conversely, mining stocks reacted favorably. The Bitcoin miner ETF ($WGMI) registered an 18% rise in the first five trading days post-halving, indicating sustained confidence in the profitability and sustainability of Bitcoin mining operations.

Observing On-Chain Dynamics After the Halving

Following the halving, several notable trends have emerged within Bitcoin’s on-chain dynamics:

  • Transaction Fees and Mining Revenue: Transaction fees constituted 75% of the total mining revenue the day following the halving. Although this percentage decreased somewhat afterward, fees have remained higher than average due to increased demand for transaction space, especially from new Bitcoin-based protocols.
  • Hashrate Stability: Despite a lower block reward, the network’s hashrate—indicative of its computational power—has stayed stable or even increased, suggesting continued profitability for miners. This stability is likely attributed to advancements in mining technology and operational adjustments in the sector.
  • Investor Profitability: The MVRV ratio, which tracks the unrealized profit of Bitcoin holders, shows that many investors hold their coins at a substantial profit compared to their purchase price.
  • Long & Short Term Holder Supply: The Long Term Holder (LTH) Supply in cryptocurrency markets refers to Bitcoin held by investors for extended periods, typically over 155 days, indicating a bullish, long-term investment perspective with less likelihood to sell in volatile conditions. In contrast, the Short Term Holder (STH) Supply consists of Bitcoin held for shorter durations, under 155 days, by investors more responsive to market fluctuations and likely to trade based on short-term trends. These metrics, derived from on-chain data analysis, are crucial for understanding market dynamics, as LTHs tend to stabilize prices by holding, while STHs can contribute to increased volatility.

Key Metrics to Watch After the Halving

For investors, tracking specific metrics after the halving is essential for understanding the network’s health, economic dynamics, and market sentiment. These insights are crucial for informed trading decisions, helping traders leverage trends and reduce risks. Here are several metrics particularly worth monitoring in the weeks ahead:

MVRV Ratio

Interactive Explanation by Glassnode

When we add a standard deviation test that pulls out the extremes in the data between market value and realised value we get the MVRV-Z indicator.

You can this and many other indicators in the IX-Cycle Indictor dashboard.

Long & Short Term Holder Supply

You can this and many other indicators in the IX-Cycle Indictor dashboard.

Net Unrealized Profit/Loss (NUPL)

This ratio measures the difference between unrealised gains and losses across all Bitcoins held in wallets, expressed as a percentage of market capitalisation. It is calculated by taking the difference between the current market value and the acquisition cost of the Bitcoin holdings. The chart helps investors gauge overall market sentiment by distinguishing between potential profit (greed) and loss (fear) states, which can indicate whether the market is in a state of bubble, faith, optimism, fear or capitulation.

Summary

  • Bitcoin Halving Impact: On April 20, 2024, Bitcoin’s block reward halved to 3.125 BTC, reducing its annual inflation rate to approximately 0.85% and enhancing its appeal as ‘digital gold’ compared to traditional assets like gold, which has a supply growth of about 2.3%.
  • Market Dynamics and Miner Adaptations: Despite Bitcoin’s price stability post-halving, transaction fees increased significantly, making up a larger share of miners’ revenue. This, along with a stable or increased hashrate, indicates ongoing profitability and adaptability in mining operations.
  • On-Chain Trends and Indicator Insights: Post-halving developments underscore the importance of monitoring metrics such as the MVRV ratio and transaction fees. For more detailed analysis and real-time monitoring of these and other critical indicators, investors are encouraged to visit the IX-Cycle Indicator Dashboard, which provides interactive and comprehensive insights into Bitcoin’s market and economic dynamics.

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