Did Strong Bitcoin ETF Demand Kill Halving’s Potential Bullish Rally?

Bitcoin’s (BTC) halving – which is often seen as a bullish catalyst for the price – may not be as positive as the market thinks, thanks to the approval of spot exchange-traded funds (ETF).

Halving, which occurs every four years, cuts bitcoin’s supply growth by half, historically causing upward pressure on the price of the largest digital asset. The previous halving cycles pushed bitcoin to new highs, and this time, strong demand from the spot ETF may add even more fuel to the rally.

“If we look at demand generally since the ETFs have launched, it has created tremendous supply shock already,” said Brian Dixon, CEO of investment firm Off the Chain Capital. “Once the halving occurs, and that supply is further reduced, it’s only logical to think that the price will appreciate.”

Read more: Bitcoin Halving, Explained

On the surface, that may be the case as the demand from the funds has been significantly more than the 900 new BTC that are mined daily. And when that supply gets cut in half, it might create an even bigger pull on the prices.

However, it might not play out the same way this time.

The price of bitcoin had rallied 46% since Jan. 11, when the spot ETFs started trading in the U.S. The demand from these funds has been so strong that the price of the digital asset rallied to a new all-time high to keep up with the onslaught of bitcoin purchases. But the market may have gotten a bit ahead of itself in the hype.

“This is the first time in which bitcoin broke its all-time highs before the halving, so there is a little bit of a concern that the ETFs have pulled demand forward and that maybe we’re going to linger where we are for a little bit,” said David Lawant, Head of Research at FalconX.

Anthony Anderson, founder and CEO of Param Labs and Kiraverse, echoed this sentiment. “Bitcoin ETFs preempted the impact of halving on supply by massively acquiring BTC since the beginning of the year.”

Also, halving might not affect the ETF flows either due to the already strong demand from the investors, at least not in the short term, according to Bloomberg Intelligence’s ETF analyst James Seyffart.

“We know many miners use OTC desks to offload their BTC and the ETF issuers also use OTC desks to obtain their Bitcoin as flows come into the fund. So theoretically the potential halving of miner bitcoin sales could mean that ETF inflows will have a greater impact on the underlying market. But for the last few months the ETF inflows have vastly exceeded anything the miners provided from operations,” he said.

“So if it does have an impact it’s unlikely to be anything extremely impactful in my view,” Seyffart added.

This is not to say that halving won’t be a significant catalyst for bitcoin and the ETF flows in the long term. After all, the success of the ETFs seems to be closely correlated to the price of BTC and vice versa. The halving may even accentuate the appeal of bitcoin as an asset class to institutional investors. “I think the halving is going to be one of the best things for bitcoin since the ETFs launched,” said Bob Iacchino, co-founder of analytics firm Path Trading Partners. “At its core is an inflation protection mechanism and inflation is ramping back up.”

In fact, the hype around halving might help bitcoin bring it in front of many investors looking for alternative assets to hedge against the global macro volatility.

“This [Halving] is happening at a time when folks are somewhat queasy about the risk that Bitcoin hedges against,” said Lawant, pointing out that many investors are starting to pay more attention to how to protect their portfolio against any significant change in global economy and having spot ETF and an asset class with shrinking supply “would be positive for ETF flows.”

This supply shortage might also lead to a longer-term impact on the ETF flows as it will impact bitcoin’s “marginal supply into perpetuity,” said Seyffart. He added that, even though the impact of the marginal supply from ETF inflows in the first three months has been much higher than the halving can have, the slashing of the supply of BTC is “permanent and goes into perpetuity.”

Whatever the case may be, the market may need to brace for volatile short-term trading for bitcoin and perhaps for the ETF flow after the halving, said Anderson, noting that in the long term, net flows for the funds should come in at a similar pace that is seen currently.

Read more: Bitcoin’s Acceptance as ‘Digital Gold’ May Spur Demand From New Investors: Coinbase