Bitcoin halving optimism faces challenges from economic realities: Goldman Sachs

With the halving around the corner, financial analysts have thrown their optimism to the wind.

While past halvings have correlated with price increases, current economic conditions might disrupt that historical pattern, said Goldman Sachs in a recent note to clients. According to the bank, factors like inflation and interest rates potentially affect how Bitcoin reacts to this halving cycle.

Historically, Bitcoin’s price increased significantly after the previous three halvings, though it took different amounts of time to reach new all-time highs. Goldman Sachs cautions against assuming the same price surge will happen again this time.

“Caution should be taken against extrapolating the past cycles and the impact of halving, given the respective prevailing macro conditions,” advised the bank.

The core argument is that macroeconomic conditions are no longer the same. Current economic factors, like high inflation and interest rates, are unlike those of previous halvings when the money supply was high and interest rates stayed low, which favored riskier investments like Bitcoin.

Today, US interest rates remain above 5%, and recent data suggest that the road to achieving the Federal Reserve’s inflation targets will be longer than anticipated.

Bank of America has indicated a risk that the Federal Reserve might not reduce interest rates until March 2025, although it still expects a rate cut in December.

Supply and demand will determine the long-term outcome

According to Goldman Sachs, the short-term price action around the halving might not significantly affect Bitcoin’s price in the coming months. The bank believes that the supply-demand dynamic and the growing interest in Bitcoin ETFs will be a bigger factor than the halving hype.

“Whether BTC halving will next week turn out to be a “buy the rumour, sell the news event” is arguably less impactful on BTC’s [medium-term] outlook, as BTC price performance will likely continue to be driven by the said supply-demand dynamic and continued demand for BTC ETFs, which combined with the self-reflexive nature of crypto markets is the primary determinant for spot price action,” noted Goldman Sachs.

A recent report from Bybit predicts exchange reserves could run out of Bitcoin within nine months. This scarcity scare comes ahead of Bitcoin halving, which will cut the new Bitcoin created per block in half.

On the flip side, demand is surging. According to Bloomberg, the recently launched spot-based Bitcoin ETFs have raked in a staggering $59.2 billion in assets under management within a mere three months.

Bitcoin’s rally may be ahead of schedule due to the arrival of spot Bitcoin ETFs in the US, according to a recent report by 21Shares.

Previously, Bitcoin typically took around 172 days to surpass its previous all-time high (ATH) and 308 days to reach a new cycle peak after the halving event. However, this cycle is different. Bitcoin already established a new ATH last month, unlike past cycles where it usually traded 40-50% below its ATH in the weeks leading up to the halving.

Bitcoin is currently trading at around $61,300, down around 3.5% in the last 24 hours, according to CoinGecko’s data. The anticipated having is only two days away.