It's been seven months since bitcoin’s latest halving, which reduced the pace of its annual supply from 330,000 units to 165,000 (Figure 1). In the past, bitcoin prices have often gone on post-halving rallies ranging from several hundred percent to even thousands of percent (Figure 2). Yet, thus far, bitcoin prices have been largely flat, trading in a relatively narrow range, at least by historical standards, despite a spike to record highs in a post-election rally. This isn’t to say that the cryptocurrency hasn’t been volatile. Day-to-day price moves have grown somewhat larger over the past few months despite the lack of overall price direction (Figure 3).
Figure 1: The production of new bitcoin slowed by 50% in April 2024
Figure 2: Historically, bitcoin rallied after halvings but not this time (so far)
Figure 3: Despite sideways price action, the size of day-to-day swings in bitcoin have been growing
What’s curious is that bitcoin has not rallied alongside gold, whose price has soared to record highs over the past few months amid central-bank buying and concerns among investors about the size of budget deficits in the U.S., Europe, Japan and China. These large budget deficits have coincided with worldwide central-bank easing, which in the minds of many investors has made holding fiat currencies less attractive compared to hard assets (Figure 4).
Figure 4: Gold prices have risen sharply in Q2 and Q3 even as bitcoin prices have stagnated
Some of these same forces which are calling into question the value of government-issued fiat currencies and are boosting gold might eventually work out to bitcoin’s benefit. Bitcoin, after all, experienced a meteoric rise in price during the period of low and often near-zero rates in the U.S. from 2009 to 2021. This may have been partly due to bitcoin being new, for the first six years of its existence it was virtually the only crypto asset on the market, giving it a large first-mover advantage. Moreover, while central banks have been cutting rates, they remain far above zero. Core inflation remains 1-1.5% higher than pre-pandemic levels across most of the Western world, which may limit the extent to which central banks will be able to ease policy.
While bitcoin rallied in Q1, prices haven’t moved much since March, even amid growing demand for ETFs, which may be increasing the volume of transactions on the bitcoin blockchain. In the past, a rising number of daily transactions has sometimes served as a precursor to rising prices (Figure 5).
Figure 5: Bitcoin transaction volumes on the crypto exchanges have perked up with ETFs
That said, miners’ revenue per transaction (referred to as cost per transaction at blockchain.info/data) has been exceptionally low in recent months. Historically, periods of relatively low payments to miners for matching trades on the bitcoin blockchain have often been followed by bull markets, although sometimes these periods of rising prices took a while to materialize.
Miners’ revenue per transaction spiked ahead of major bitcoin bear markets in 2011, 2014, 2018 and 2022. When it returned to low levels, it sometimes took bitcoin prices a while to begin a new bull market.
Given the growing presence of bitcoin ETFs, the reduced pace of new supply creation, the rising number of transactions and the relatively low level of miners’ revenue per transaction, conditions may be ripening for a new bull market in bitcoin (Figure 6). That said, the cryptocurrency has yet to break its previous record highs decisively to the upside.
Figure 6: Miners’ revenue per transaction has fallen to low levels. A precursor to a rally?
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
