Bitcoin Halving May Have a Positive Impact on Prices, But Other Factors Still at Play: Coinbase

• The next halving event is expected in mid-April.

• Bitcoin rallied into and after previous block reward halvings.

• Coinbase said non-crypto influences such as macro factors are also important.

Historical precedent suggests that bitcoin’s (BTC) recent strong performance will continue into and after the upcoming halving, as the event reduces the supply of new BTC, but investors should be wary of this view, Coinbase (COIN) said in a research report on Wednesday.

The world’s largest cryptocurrency rose an average of 61% in the six months before prior halvings and gained an average of 348% in the six months after, Coinbase noted.

“While it’s possible that the halving could have a positive impact on bitcoin’s performance, there’s still only limited historical evidence about this relationship, making it somewhat speculative,” the report said.

The quadrennial reward halving is when mining rewards are cut in half. The next event is likely to occur on April 15.

“Bitcoin doesn’t operate in a vacuum,” and its price is affected by other influences, such as macro factors, Coinbase said. The report noted that much of bitcoin’s outperformance after the previous halving in May 2020 came in an “environment with extraordinarily loose monetary policy and historically strong fiscal stimulus in response to the Covid-19 pandemic.”

Similarly, the recent rally in the world’s largest cryptocurrency was fuelled more by fever about the prospects of spot bitcoin exchange-traded funds (ETFs) than by excitement over the halving, the note said.

Another data point worth considering when looking at the upcoming halving is the total supply of bitcoin held by long-term holders, Coinbase said, adding that “long-term holders should be less likely than short-term holders to view halving as an opportunity to sell into strength.” The amount of bitcoin currently held by long-term holders is quite high by historical standards.

On the positive side, the U.S. Federal Reserve is expected to begin cutting rates in May and to start tapering its quantitative tightening program, which is positive for risk assets, the report added.