How will Bitcoin halving affect ETH & altcoin prices? Reviewed by Digimagg

Bitcoin's fourth halving event approaches. On April 20, 2024, block emissions will halve from 6.25 BTC to 3.125 BTC, strengthening its role as an inflation-resistant currency and store-of-value asset. Past halvings have driven Bitcoin prices to new highs. But how will this impact Ether (ETH) and other altcoins? We analyze historical market performance and predict the crypto market's response to the upcoming Bitcoin halving.

How Bitcoin halving affects crypto markets?

While there isn't a direct link between halving events and altcoin performance, the impact of Bitcoin's close price correlation and influence on the broader crypto market underscores the significance of halving events for the entire industry. Bitcoin halving events garner attention, with BTC often reaching new highs, drawing mainstream media and newcomers to the crypto space. This exposure to Bitcoin often leads curious individuals to explore altcoins, sparking further interest in the crypto ecosystem.

Analyzing the historical price of ETH following halving events

In this segment, we analyze the response of ETH prices to previous Bitcoin halving occurrences:

Bitcoin’s second halving: July 2016

During Bitcoin’s initial halving event in November 2012, ETH had not yet been introduced. By the time of Bitcoin’s second halving event in July 2016, the Ethereum blockchain was only about a year old. At this juncture, ETH was trading within the range of $12 to $15.

Examining historical data, it becomes evident that Bitcoin’s second halving did not yield an immediate uptick in ETH price. In fact, over the subsequent six months, ETH prices declined to as low as $5.8, while BTC prices saw consistent growth over the same timeframe.

Approximately 18 months post-halving, both crypto assets reached their zeniths. BTC achieved a then-unprecedented high of over $19,000 in December 2017, with ETH following suit by surpassing $1,400 a month later in January 2017.

The trajectory of BTC and ETH prices following Bitcoin’s second halving corroborates a prevailing market hypothesis: BTC tends to outperform altcoins during the initial phases of cryptocurrency bull markets.

Bitcoin’s third Halving: May 2020

During Bitcoin’s third halving in May 2020, ETH traded between $175 and $250. Notably, ETH's price movements aligned more closely with Bitcoin's during this period. Within a year, both ETH and BTC reached new record highs by May 2021.

Despite a significant downturn triggered by China’s crypto trading and mining bans in May 2021, the crypto market rebounded strongly, achieving new peaks in November 2021.

Over time, the correlation between BTC and ETH prices has stabilized within the range of +0.9 to +0.6, indicating a tendency for the two assets to move together. In contrast, the BTC-ETH correlation hit a low of -0.5 back in 2016.

Key economic factors in 2024

In assessing how ETH and altcoins might respond to the 2024 Bitcoin halving event, it's crucial to recognize that historical data alone cannot fully predict market behavior. Each market cycle is unique, influenced by various underlying factors that necessitate careful analysis.

For instance, the surge in ETH prices six months after Bitcoin's second halving event in 2017 was largely driven by the initial coin offering (ICO) boom. Similarly, Bitcoin's third halving event in 2020 coincided with unprecedented actions such as zero interest rates following the onset of the COVID-19 pandemic.

While Bitcoin halving's scarcity narrative holds significant sway over crypto markets, broader economic contexts must also be taken into account. Here are some economic events to consider for 2024:

1. Macroeconomics
Recent corrections in crypto prices in mid-April 2024 were triggered by higher-than-expected US inflation data, impacting hopes of substantial interest rate cuts by the US Federal Reserve. Future inflation data and interest rate projections will be pivotal in shaping the performance of BTC and altcoins in 2024.

2. Geopolitical tensions
Ongoing conflicts in regions like the Middle East and Europe could drive demand for Bitcoin as a hedge against geopolitical uncertainties. ETH and altcoins may also benefit from this narrative, given their perception as global and decentralized assets.

3. ETH ETF
The approval of spot ETH ETFs in the US could become the most significant market catalyst for ETH prices in 2024. The decision deadline for spot ETH ETF applications in the US is slated for May 23, 2024.

4. Regulations
Continued regulatory developments will exert influence over Bitcoin and altcoin prices in 2024. For instance, the recent lawsuit filed by the SEC against Uniswap, a leading Ethereum decentralized exchange (DEX), underscores the ongoing regulatory scrutiny within the crypto space.

Primary beneficiary of Bitcoin halving: Bitcoin DeFi landscape

In this segment, we spotlight a specific sector within the crypto landscape poised to reap the benefits of Bitcoin's fourth halving event.

The "Bitcoin DeFi" sector encompasses crypto projects and smart contract platforms dedicated to introducing Ethereum-like decentralized finance (DeFi) activities to the Bitcoin network.

Unlike other layer one blockchains, Bitcoin lacks native support for smart contracts, constraining its capacity to host a thriving DeFi ecosystem.

Platforms such as Stacks (STX) and CoreDAO (CORE) are pioneering innovative solutions to facilitate decentralized exchanges (DEXes), crypto lending, staking, and cross-chain integrations on the Bitcoin network.

Moreover, the unveiling of the Ordinals theory in December 2022 has empowered developers to mint both fungible and non-fungible tokens (NFTs) directly on the Bitcoin blockchain.

In summary, the fourth halving event of Bitcoin marks a significant milestone for the crypto community. Despite frequent criticism and skepticism, the industry has consistently demonstrated resilience and continued growth. This halving event serves as a testament to the enduring strength of the crypto sector and the remarkable innovations it has fostered.