Bitcoin Halving Is Nice, but Kickstarting Bull Run Requires Fiat Money Supply Growth

The "Wild West" era of crypto lending ended in a series of bankruptcies. Now the industry is attempting to rebuild in a sustainable and accountable manner.
While bulls point to next year's halving as a bull catalyst, any sizable uptrend is likely contingent on major central banks boosting their year-on-year M2 money supply growth rates, past data show.
The crypto market anticipates Bitcoin's fourth mining reward halving in April 2024, hoping it will trigger a significant bull run, as it has done in the past. However, it's important to remember that previous halvings were not the sole drivers of bull markets. Macro factors, such as ample fiat liquidity conditions, also played a crucial role, according to MacroMicro data.

Bullish reward halvings?

"Reward halving is a programmed Bitcoin event that occurs every four years, reducing the supply expansion rate by 50%. Previous halvings in 2012, 2016, and 2020 led to triple-digit price surges, reaching new highs within 12-18 months before subsequent downtrends. Bear markets typically lost steam around 15-16 months before the next halving. Bitcoin's 56% YTD gain in 2023, following a bear market, aligns with historical patterns."

The anticipated halving-driven uptrend's strength is closely tied to the actions of major central banks such as the U.S. Federal Reserve, European Central Bank, Bank of Japan, and People's Bank of China. Their year-on-year M2 money supply growth rates play a crucial role.

M2 aggregates the total value of the fiat currency in circulation for these central banks.

The higher M2 goes, the higher bitcoin price could go. (MacroMicro) (MacroMicro)

In past post-halving bull runs, a key feature was the presence of an aggregate M2 money supply growth rate of 6% or higher among the U.S. Federal Reserve, European Central Bank, Bank of Japan, and People's Bank of China. Conversely, bear markets aligned with a slowdown in the money supply growth rate. This pattern supports the widely-held belief that Bitcoin's performance is closely linked to the availability of fiat liquidity.

While the total M2 money supply growth rate has turned positive this year, it remains well below the 6% mark. The Fed and most other central banks have raised rates rapidly over the past 12-18 months to tame inflation, and the probability of renewed liquidity easing in months ahead appears low.

Edited by Stephen Alpher.