Goldman Cautions Against Extrapolating Previous Bitcoin Halving Cycles for Price Predictions

In approximately two days, Bitcoin’s reward for mining a block will be cut in half for the fourth time. This event, which occurs every four years, will decrease the amount of new Bitcoins created per block from 6.25 to 3.125. Historically, such occurrences have been followed by significant, prolonged increases in Bitcoin’s price. The cryptocurrency community is optimistic that this trend will continue.

Goldman Sachs, a leading investment bank, advised its clients against placing excessive significance on historical bitcoin halving events.

In the past, Bitcoin’s price has generally risen following each of the last three halvings. However, the length of time it took for Bitcoin to reach new record highs after these events varied greatly. It’s important to keep in mind that previous trends may not accurately predict future results, as the current market conditions are quite different. (Goldman’s FICC and Equities team warned clients on April 12)

The given chart illustrates how the value of bitcoin changed following each halving event on November 28, 2012, July 9, 2016, and May 11, 2020.

After every halving, bulls held the power position; however, the size and duration it took to reach the peak price varied.

In other words, during those past occasions, the economic situation was distinct from the current one marked by high inflation and elevated interest rates. At that time, the M2 money supply of significant central banks like the U.S. Federal Reserve, European Central Bank, Bank of Japan, and People’s Bank of China expanded rapidly, as reported last year in CoinDesk. Interests rates remained low or even negative in developed countries, thereby fueling risk-taking behaviors across various financial markets, including cryptocurrencies.

Read more: What Bitcoiners Are Saying About the Upcoming Bitcoin Halving

Put simply, if the larger historical circumstances are favorable, people may be more likely to take risks, leading history to follow a similar pattern as before.

Today, things are different: The U.S., the globe’s leading economy, has interest rates over 5%, and investors have abandoned expectations for rate reductions this year due to persistent inflation and an economically robust nation.

This year, the price of bitcoin has surged by 50%, setting new records before the scheduled halving event. The boom is attributed to substantial investments in U.S.-based Bitcoin spot ETFs, which have seen assets under management amounting to $59.2 billion within just three months, as reported by Bloomberg. Consequently, bitcoin has experienced a rise of over 130% within the past six months, causing a significant imbalance in supply and demand.

In simpler terms, some experts think that the expected price increase following Bitcoin’s halving in April 2020 might have already happened. This means there could be a potential drop in price right after the event.

In Goldman’s perspective, Bitcoin’s halving serves as a subtle reminder to investors about the limited number of Bitcoins in circulation. The upcoming developments with regard to Bitcoin ETFs will significantly influence the market trend over the mid-term.

In simpler terms, the team expressed that while the impact of the upcoming Bitcoin halving on its price next week being a “buy the rumor, sell the news” event may not significantly affect Bitcoin’s mid-term perspective, the primary drivers of Bitcoin’s price movement will continue to be the supply and demand dynamics and the increasing demand for Bitcoin ETFs. These factors, along with the inherent volatility of crypto markets, are what primarily shape Bitcoin’s current market value.