Bitcoin halving 'danger zone' and correction. What you need to know

Bitcoin (BTC) has been on a downward trend lately, lagging at around $63,000, well below its recent all-time high of $73,835 on 14 March. Much of this can be attributed to profit-taking by traders cashing in, as well as a surge in futures liquidations. Liquidations in the Bitcoin futures market spiked, exceeding $40 million in long positions within a 24-hour period on 18 March, which negatively impacted the market. Additionally, a decrease in trading volume and an increase in short-term holders suggest ongoing pressure on Bitcoin's price, although long-term prospects remain optimistic amidst growing institutional adoption.

Some analysts view the current correction period as a pre-halving retrace, following historical patterns. Let's explore this so-called 'danger zone' before the halving approaches and what else might be affecting Bitcoin's price.

What is the BTC halving danger zone?

Bitcoin is on the verge of entering a critical phase dubbed the "danger zone". This dramatic phrase refers to a potential dip in the weeks preceding the halving, which would be in line with historical patterns in previous cycles. Popular pseudonymous analyst Rekt Capital highlighted past instances where Bitcoin experienced significant price drops 14 to 28 days before the halving, setting the stage for a cautious outlook in the coming days. In previous examples of a pre-halving retrace, BTC dipped by 38% and 20% during the 2016 and 2020 halving cycles.

Bitcoin is approaching its next block subsidy halving, scheduled about a month from now. At the time of writing on 19 March, the current estimated date for the halving is 18 April. If history repeats, the next weeks may trigger a familiar pattern of price retracement as observed before the previous halving dates. A "danger zone" correction of up to 40% is likely to test the nerve of many Bitcoin traders, but the overall mood in the crypto sector is still bullish and with good reason.

Whale watching

One indication of where BTC price might go from here is in the behaviour of the largest Bitcoin holders. And it seems like they're still all-in and hungry for more. According to data from Glassnode, Bitcoin whales, which are defined as entities holding 1,000 BTC or more, are actively accumulating BTC, even at current price levels.

Whales and sharks (entities holding between 100 BTC and 1,000 BTC) are aggressively accumulating coins, as indicated by flows between whale wallets and exchanges, with whales holding approximately 84,000 BTC more than 30 days prior as of 17 March. In contrast, smaller holders, referred to as fish (those with between 10 BTC and 100 BTC), have been distributing their assets throughout the month.

Analysts are pointing to this stark contrast in accumulation behaviour as a positive sign for Bitcoin, as the most powerful individuals involved with the cryptocurrency appear confident that prices will go up and are amassing even larger hoards in anticipation of a post-halving bull run.

Big investors continue to back Bitcoin

Investment inflows into Bitcoin products reached another milestone with a record weekly addition of $2.9 billion, bringing the year-to-date total inflow to $13.2 billion. This surge in inflows predominantly benefited spot Bitcoin exchange-traded funds (ETFs), which now hold over $74.61 billion worth of Bitcoin assets, representing 97% of the total inflows.

While Bitcoin products witnessed unprecedented interest, Ethereum (ETH) and other altcoin investment products experienced comparatively lower investor enthusiasm, with their combined year-to-date inflows significantly lagging behind Bitcoin.

Meanwhile, outside the US, crypto exchange products observed notable outflows, particularly from Bitcoin exchange-traded products on various international exchanges, with investors in Europe reallocating funds, in part, to US counterparts. This is likely because US Bitcoin ETFs levy minimal charges, sometimes as low as 0%, on their inflows. Following their endorsement by the Securities and Exchange Commission (SEC) in January, US Bitcoin ETFs have secured over 80% of the global spot Bitcoin ETF market share.

The popularity of Bitcoin ETFs has prompted regulatory shifts in jurisdictions like the UK and Hong Kong, where authorities have shown willingness to accommodate such products, indicating a broader acceptance of crypto-backed exchange-traded notes.

The robust inflows into Bitcoin investment products have not stopped the price of the token from falling over the last week but should be seen as an indication that the big institutional investors, much like the whale hodlers, expect to see even greater returns on their investment in the future, after the halving and beyond. In particular, two major institutional players have doubled down on Bitcoin this week:

• MicroStrategy completed another round of convertible notes offering that totalled $603.75 million to bolster its Bitcoin reserves, adding to its aggressive Bitcoin acquisition strategy. Former CEO Michael Saylor announced the completion of the offering on 18 March, after a recent $800 million convertible note offering on 8 March. The proceeds from these offerings are earmarked for acquiring additional Bitcoin. With the latest funds, MicroStrategy swiftly acquired an additional 9,245 BTC, bringing its total holdings to 214,246 BTC or 1.02% of Bitcoin's total supply. Saylor reiterated MicroStrategy's commitment to hodling Bitcoin, emphasising that Bitcoin remains the firm's exit strategy, with no plans for selling its substantial BTC holdings.
• Standard Chartered revised its year-end Bitcoin price forecast to $150,000, marking a 50% increase from its previous estimate of $100,000. The bank anticipates Bitcoin to hit a cycle high of $250,000 in 2025 before stabilising around $200,000. Additionally, Standard Chartered predicts that approval of a spot exchange-traded fund in the US could drive the price of Ethereum to $8,000 by the end of 2024. The bank attributes its analysis to comparisons with the impact of gold ETFs and a correlation between ETF inflows and Bitcoin prices. 

Crypto optimism dominates as the finance sector keeps an eye on the Fed

Despite this, crypto industry leaders remain optimistic about Bitcoin's long-term trajectory. They foresee continued growth propelled by institutional investment and a gradual upward trend before the scheduled supply reduction.

As Bitcoin struggles to recover from a turbulent weekend, facing resistance as it attempts to reclaim previous all-time highs amidst heightened volatility, market participants are eyeing the Federal Reserve's next moves and potential impacts on both crypto and traditional assets.

The focus is on the US Federal Reserve's monetary policy meeting, with many investors awaiting its outcome on 20 March before committing further to cryptocurrencies, despite expectations of unchanged interest rates. The decision on Wednesday will be seen as reflecting the Fed's confidence in the ongoing strength of the economy.

Analysts speculate that Bitcoin's potential upward trajectory in 2024 hinges on the Fed transitioning from a contractionary to an expansionary monetary policy, contingent on factors like inflation and economic indicators. Thus, sustained elevated interest rates could dampen prospects of a Bitcoin rally, whereas a reduction in interest rates would spur further confidence.

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