Bitcoin often experiences increased volatility in the lead up to the halving, but drying liquidity is also a concern.
As the 2024 halving inches closer, all eyes are turning to Bitcoin – the first and most valuable cryptocurrency.
The Bitcoin halving occurs every four years, and it decreases the amount of Bitcoin in circulation by halving miner rewards. The event has a huge impact on the price of Bitcoin, which moves in clear four-year market cycles.
Benjamin Cowen, a popular crypto analyst, recently cautioned that Bitcoin may see a substantial price drop before the halving takes place in April next year, based on historical price data.
Speaking with Scott Melker, Cowen said, “Last cycle, what we always see, everyone talks about the Bitcoin halving. I’ve seen this for the last several cycles. Everyone talks about it and what normally happens is Bitcoin halves [in price] before the halving and then people are like, ‘Oh, well, that’s what the halving meant”.
Cowen pointed out that Bitcoin dropped 50% before the last “real” bull market began, during the pandemic.
“That was still a 50% drop,” he said. “And this drop started in the summer. Go to the cycle before that. We had a drop starting in the summer and it dropped 50% before the real bull market began. So I still look at it and some people say, ‘Well, it’s not dropping today.’ How do we know it’s not? How do we know that this isn’t just a lower high and that this is still part of the 50% drop? It could be.”
At the time of writing, Bitcoin is trading hands at $28,359, which is 4.4% up from the previous week.
A 50% drop would see the pioneer crypto trade at approximately $14,000 – levels not seen since late 2020, a few months before the bull market.
Experts predict however that after the halving, Bitcoin could soar to new highs, with BitQuant predicting a price forecast of $250,000.
Drying liquidity is a concern as the market looks to a distribution phase
Last week, CryptoPlug reported that Bitcoin has gained significant market dominance while altcoins have suffered.
Cowen addressed that liquidity is leaving the altcoin market, which is likely to impact the price of Bitcoin.
“There’s not really a lot of new money coming into the space,” he said. “It’s basically just money shuffling around from the altcoin market to Bitcoin and one of the main drivers of it is Ethereum. Look at look at what’s going on with the ETH/Bitcoin pair. It’s collapsing right now. I said before, this just simply looks like a distribution phase.”
A distribution phase refers to a period in which existing investors sell off their assets, leading to either price stabilisation or decline. It often precedes a downtrend or consolidation.
“That’s my concern for Bitcoin, is that liquidity is leaving the altcoin market. The purchasing power of these altcoins are going down and at some point, I think that affects Bitcoin.”
“Look at the total market cap,” he added. “If there were a lot of new money coming into the space, why is the total market cap the same as it was back in February and the same as it was back in August 2022?”
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