Pantera Capital on Bitcoin's 2024 Halving

In the latest issue of Pantera Capital’s “Blockchain Letter,” the crypto-focused investment firm examined the intricacies of Bitcoin’s upcoming halving event, which is expected in April 2024. Authored by Dan Morehead, Paul Veradittakit, Matt Stephenson, and Andrew Harris, the newsletter provided a comprehensive look at the mechanics and potential market impact of this significant event in Bitcoin’s lifecycle.

The firm emphasizes that Bitcoin’s monetary policy is fundamentally different from traditional Quantitative Easing methods. According to the Bitcoin protocol, only 21 million coins will ever exist, and the issuance rate of new coins is designed to decrease over time. Currently, 6.25 bitcoins are generated every ten minutes, a number that will be halved to 3.125 BTC per block post-halving.

The firm points out that Bitcoin’s supply mechanism is rooted in mathematical predictability, making it transparent by design. This is in stark contrast to traditional financial systems, which can be influenced by political powers. Pantera Capital cites Efficient Markets Theory to suggest that even though the halving is a well-known event, it doesn’t mean there isn’t significant profit potential. The firm refers to Warren Buffet’s views on market efficiency to underline this point.

According to Pantera Capital, if the demand for new bitcoins remains constant while the supply is halved, it will naturally push the price upwards. The firm notes that Bitcoin has historically experienced a surge in demand leading up to the halving, driven by the anticipation of a price increase. Pantera Capital also observes that Bitcoin’s price behavior has followed a pattern around past halving events. Typically, the cryptocurrency has hit a low approximately 477 days before the halving, followed by a rally leading into the event and a more robust rally afterward.

The investment firm uses a stock-to-flow price projection framework to analyze the impact of halvings. They note that each subsequent halving will likely have a diminishing impact on Bitcoin’s price due to the decreasing ratio of new supply reduction. For instance, the 2020 halving reduced the new supply by 43% relative to the previous one and had a 23% impact on the price. Pantera Capital projects that if historical patterns hold, Bitcoin could rise to $35,000 before the next halving and potentially reach $148,000 afterward.

The firm concludes by stating that Bitcoin’s current price is already 7% above their forecast for the 2024 halving, indicating a potentially bullish market sentiment.

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