Bitcoin‘s production rate reduction, known as halving, could slow down supply and lead to a supply crunch. According to analysts at the cryptocurrency exchange Bybit, each halving event makes BTC increasingly scarce. However, the next event occurring within the next four days will make Bitcoin twice as rare as gold.
Bitcoin to Become Twice as Rare as Gold
A report on Bitcoin’s expectations before and after the halving indicates that reserves at all central exchanges could be depleted within nine months, suggesting a supply squeeze for BTC. According to Bybit, the Bitcoin stock-to-flow (S2F) model proves that BTC becomes scarcer than gold after each halving. The S2F ratio is calculated by dividing the circulating supply of a commodity by its annual production.
At the time of writing this article, Bitcoin’s S2F ratio is around 56, while gold’s is 60. However, after the Halving, Bitcoin’s ratio is expected to double to 112.
Post-Halving Supply Crunch Possible
Halving reduces BTC’s production rate, slows down the supply, and makes a supply crunch inevitable. Bitcoin is already showing early signs of a worsening short-focused squeeze post-halving.
For spot Bitcoin exchange-traded funds (ETFs), BTC supply typically comes from central exchanges as investors realize profitable positions and miners sell block rewards. When mining rewards are reduced and investors hold their assets in cold or decentralized wallets, miners will avoid quick sales, reducing the sell-side supply flowing to exchanges.
Currently, there are about two million Bitcoins in central exchange reserves. If the daily entry of 500 million dollars continues, approximately 7,142 BTC will be withdrawn from the exchange reserves daily, indicating that the reserves could only last nine months post-halving. Bybit notes, “While the supply crunch pushes the price towards a new record, it’s not surprising that Bitcoin’s price continues to rise even before and after the halving.”
A Complex Cycle
Although it is known that halving events trigger price increases in Bitcoin, analysts view this cycle as complex. BTC has already recorded a new high, so there is uncertainty about the impact of the upcoming event. Some believe that the post-halving rally will be less notable than those following past events.
However, market experts believe that the demand generated as spot Bitcoin ETFs reach their full potential will drive BTC’s price increase post-halving this time. BTC is trading above $63,500 as this article is written.
