Bitcoin (BTC) halving is expected later this month but a confluence of factors is likely to set the cryptocurrency’s fourth such event apart from prior occurrences.

Halving—after which the rate bitcoins are generated by the network roughly every ten minutes is cut in half—typically occurs after 210,000 bitcoins are mined or roughly every four years. Halving is expected this year around April 20, but some suggest it could happen even sooner.

Bitcoin Price Is Trading Differently Ahead Of The Halving

In the runup to prior halving iterations, bitcoin has scaled new highs in the months following the reduction in the crypto asset’s rate of issuance.

Recently it reached a new all-time high before the current cycle’s halving event for the first time. Analysts at Coinbase warn the market could be placing undue importance on price movements around halving without taking into account the context of broader market conditions.

“The performance of bitcoin around previous halving events was most likely context-dependent. That may explain why price trends during different cycles have varied so widely,” wrote in a March report.

For example, they attribute some of the 45% growth before the second halving in July 2016 to uncertainties surrounding Brexit and the 73% gain ahead of the third halving in May 2020 to the pandemic-era initial coin offering (ICO) boom.

Spot Bitcoin ETFs Have Turbocharged Demand

Spot bitcoin exchange-traded funds (ETFs) have “fundamentally changed “ the market dynamics for bitcoin, according to Coinbase. And they did not exist at the time of prior halvings.

The products that began trading in January have seen massive inflows that have driven up demand and consequently the price of bitcoin.

“The approval of bitcoin ETFs in the U.S. could significantly alter the supply and demand dynamics of bitcoin, as inflows are roughly 5-7X the daily new units of generated BTC,” said a 21Shares report.

So, how does it play out in the context of the halving? In a hypothetical scenario, if the supply consisted of only newly minted bitcoin (and existing bitcoin were not available to be traded), here’s what Coinbase said could happen:

“If we assumed that the pace of new inflows into US-based ETFs slowed from $6 billion in February to say a steady state of $1 billion of net inflows per month, a simple mental model suggests that measured against ~13.5k BTC mined per month (in a post-halving environment) the equilibrium price for bitcoin should be closer to around $74,000,” they wrote.

Fewer Bitcoins Available To Trade

“Bitcoin available to trade (i.e. the difference between circulating and illiquid supply) has been in decline since early 2020, a major shift from previous cycles,” said Coinbase.

Normally, illiquid supply is attributed to lost wallets and forgotten keys but Coinbase analysts also mention “the level of available bitcoin supply has been trending lower over the last four years” and that’s a departure from prior halving cycles.

But that’s not necessarily a bad thing for bitcoin, since that could mean investors with long-term positions and less inclination to sell with short-term price variations. 

With more than $19 million bitcoin in circulation and the supply capped at $21 million, the halving is making mining harder and slashing incentives for miners in half. 

Typically, miners sell bitcoin ahead of halvings in anticipation of covering operational expenses for things like energy and mining equipment. However, the bitcoin rally has led to fewer bitcoin sales by miners who have up to 1.8 million bitcoin in their reserves.

Uncertainty Around The Fed’s Move On Rates

Another key factor to consider during the upcoming halving event is the contrast of bitcoin’s predictable, declining rate of issuance in context of the uncertainties around the U.S. Federal Reserve lowering its benchmark rates.

The general thesis is if the Fed cuts rates, U.S. Treasury yields will weaken, making riskier assets such as cryptocurrencies more attractive to investors. However, unexpectedly robust economic data in the past few weeks has stoked the debate around rate cuts. Cutting too soon could revive inflation but keeping rates higher for too long could push the economy to the brink of a recession.

Other central banks across the globe have already begun to shift their monetary policy stance.

“The eagerness of major central banks to reduce interest rates despite strong economic growth has likely contributed to an increase in market inflation expectations,” digital asset manager Grayscale said in a report. “The risk of higher inflation may in turn be stimulating demand for alternative stores of value, like physical gold and Bitcoin.”