How will the Bitcoin halving affect ETH price?

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A number of factors are making the upcoming Bitcoin (BTC) halving in April the most highly anticipated in the history of crypto.

Three previous Bitcoin halvings have occurred on Nov. 28, 2012, July 9, 2016, and May 11, 2020. This time, the halving follows the United States Securities and Exchange Commission (SEC) approving the first-ever spot Bitcoin exchange-traded funds (ETFs) in the U.S., massively increasing the hype around the event.

The ETFs are not the only factor increasing expectation levels. Julian Grigo, head of institutions and fintech for Safe — the creators of SafeWallet — told Cointelegraph the Bitcoin halving is an important reminder of what separates Bitcoin from fiat currency.

This Bitcoin halving comes following a period of higher-than-average global inflation.

“After two years of higher inflation in the U.S. and the eurozone and even higher in other economic areas, an asset with a fixed supply is really appealing to investors,” said Grigo. “The Bitcoin halving event will serve as a reminder of that.”

“It reminds global investors and observers of one of the key features of Bitcoin: a fixed supply schedule that no one can change. In this regard, Bitcoin and other cryptocurrencies stand in stark contrast to currencies issued by nation states such as the U.S. dollar.”

According to Grigo, however, this limited supply is even more true of Ether (ETH) right now.

“Bitcoin’s supply is still growing — just at a lower speed. In contrast, Ether’s supply is actually decreasing. From that perspective, Ether can be seen as an even better store of value […] Therefore, I would not be surprised to see Ether benefiting from the halving event even more so than Bitcoin,” he said.

Market volatility and price surges

Joey Garcia, director and head of public affairs, policy and regulation at Xapo Bank, told Cointelegraph he expects the halving to be a positive for Ethereum and the broader market.

Garcia states, “The mechanism is designed to mimic the scarcity and deflationary aspect of precious metals.” He adds, “The indirect effect that this can have on Ethereum and the broader market is interesting.”

He said the halving can positively affect market sentiment and “result in more resources and innovation flowing into wider ecosystems like Ethereum.”

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The scarcity Garcia refers to is the reduction of mining rewards from 6.25 BTC to 3.125 BTC. Naturally, this is expected to put increased pressure on the supply side of Bitcoin.

Alun Evans, co-founder of Laos Network, a universal layer-1 for digital assets, told Cointelegraph, “While this event directly impacts Bitcoin, its implications are felt across the entire crypto ecosystem, including Ethereum.”

Evans adds, “The reduced supply of new coins entering the market can lead to scarcity. If Bitcoin’s price rises post-halving, Ethereum and other cryptocurrencies will likely experience price increases as investors diversify their portfolios.”

The price of Ether (purple) rose with that of Bitcoin (blue) following the halving in May 2020. Source: TradingView

Evans believes this may not be the wholly positive news many think it is. He told Cointelegraph that there could be some downside to rapid price appreciation in ETH. Evans argues, “a surge in Ethereum’s price is not entirely beneficial. While Bitcoin serves mainly as a digital storage of value or as a payment method, Ethereum underpins various applications and smart contracts.”

Therefore, a more volatile and unpredictable market could make Ethereum usage less palatable for users and developers alike. That’s an issue Ethereum developers will have to contend with during the next bull cycle.

“As Ethereum network costs increase, we’ll continue to see alternative layer-1 and layer-2 scaling solutions (e.g., multi-Ethereum Virtual Machine superchains) to improve the network’s scalability and reduce transaction fees, making it more accessible and cost-effective for users and developers,” says Evans.

Is it the halving or something else?

While there are those attributing positive market action to Bitcoin and the halving, others point to additional factors. Siddharth Lalwani, CEO of Range Protocol — an infrastructure for on-chain asset management — is among those looking elsewhere to explain positive price appreciation for Ethereum.

“Bitcoin continues its parabolic rally as investors anticipate the upcoming supply halving event in the next few weeks,” Lalwani told Cointelegraph. “Reflected across steady inflows to Bitcoin ETFs, there are three core catalysts driving net positive market action: Ethereum’s Dencun upgrade in March, the Bitcoin halving in April, and the prospect of spot Ethereum ETF approvals by the SEC in May.”

But while most analysts are focusing on the positives of upward Bitcoin momentum, Lalwani predicts that Ethereum may lose out in the shorter term.

“As Bitcoin surges to all-time highs, liquidity is momentarily pulled from other sources like Ethereum and altcoins. Once the attention from Bitcoin moves away to the potential of an Ethereum ETF, liquidity will retrace and consolidate at high levels, leading to price rallies for the macro outlook,” said Lalwani.

Ultimately, Lalwani expects “a bullish trend to prevail for overall crypto markets in 2024.”

Jordi Alexander, chief alchemist at Mantle — a network for Ethereum rollups — is another who argues that Ethereum price appreciation shouldn’t be attributed solely to the halving.

“The sheer force of rallying Bitcoin prices has seen evident knock-on effects for Ethereum, backed by a resurgence of investor interest in crypto. Major industry milestones from the Ethereum Dencun upgrade happening in March, to Bitcoin halving in April and the possibility of a spot Ethereum ETF launch in May have sparked excitement all around,” Alexander told Cointelegraph.

Alexander added that “these events are predictable and largely priced in.”

Despite this, Alexander maintains that both Bitcoin and Ethereum remain great long-term investments.

“As long as these two assets continue to have buyers, new money inflows will keep coming in — but at some point, there will be no tokens left to buy […] We will eventually hit a point where token issuance becomes very low, and the supply squeeze will set in, leading to explosive movements.”

Aki Balogh is the co-founder and CEO of DLC.Link, a Web3 infrastructure enabling Bitcoin holders to self-wrap and engage with decentralized finance. Balogh told Cointelegraph he is very bullish on Bitcoin due to the halving, Ordinals and MicroStrategy “cornering the market,” all of which are “further reducing the supply.”

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Balogh points out that “ETH and other tokens are highly correlated to BTC.”

“A lot of hedge traders trade ETH and other tokens against BTC instead of U.S. dollars to minimize [foreign exchange] risk. So, if BTC goes up, it will have a secondary effect of increasing the values of ETH and other tokens,” he said.

As Grigo neatly summarizes, “The Bitcoin halving is a megaphone for crypto as a new asset class, but Ethereum might have the loudest echo.”

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