A Bitcoin Halving Shock Could Occur in 2025 - Here's Why

With the increasing presence of Bitcoin in traditional financial systems and speculation surrounding the strategic BTC reserves of the United States, some experts predict that a major supply shock may occur in this cycle, potentially breaking the 4-year cycle theory with extraordinary price increases. However, a new report suggests that such a supply shock may be unlikely to occur in 2025. Despite the Bitcoin halving event, the increasing interest from institutions, and the emergence of Bitcoin ETFs in the US, discussions about limited supply have been fueled, detailed data shows a different prospect, according to CEX.IO's report. The combination of long-term hodler (LTH) activity, ETFs, and the developing liquidity trend indicates a robust supply ecosystem capable of mitigating underlying shocks.

The important thing in this evaluation is the behavior of the LTH supply after each halving. History shows that halving events often trigger a significant shift of Bitcoin from LTH to short-term hodlers (STH), thereby increasing market liquidity. In 2024 alone, the dominance of the LTH supply decreased by 9%, releasing 1.58 million BTC into the market. With the average 16% decrease in dominance ratio of LTH in previous halving cycles, it is forecasted that around 1.4 million BTC will be transferred from LTH to STH by 2025. The report explains that this will help meet the increasing demand from organizations or governments, through significant profit-taking by LTH, reducing the scarcity of supply.

ETF Fluctuations, OTC Activities, and Market Liquidity The performance of ETFs, which are considered potential drivers of supply shocks, but when analyzed thoroughly, they do not create great volatility for the spot market. Although U.S. spot Bitcoin ETFs accumulate more than 1.13 million BTC by 2024, the majority of this accumulation comes from cash-and-cargo transactions and cash payments rather than direct investments with clear and specific goals. These arbitrage strategies, which rely on derivatives such as CME futures, help balance supply and demand without putting direct pressure on the spot market.

Furthermore, ETFs currently only account for less than 4% of the total trading volume of Bitcoin, which further reduces the potential for imbalance in the overall supply. The market liquidity and Bitcoin reserves on exchanges also play a crucial role. Although the Bitcoin reserves of exchanges have dropped to record lows in 2024, the majority of withdrawals are for transferring to cold storage rather than for panic selling, reflecting long-term confidence in Bitcoin. In addition, OTC platforms have increased their holdings to over 200,000 BTC, indicating a redistribution of liquidity instead of complete depletion. This diversification, coupled with stable daily transaction volumes, demonstrates a balanced and dynamic market. Finally, market depth indicators show a significant improvement in liquidity. The increasing recovery potential is reflected in a 61% increase in USD-based liquidity in 2024, despite a decrease in market depth measured in BTC. With major exchanges consolidating market share and US-based platforms expanding dominance, the current liquidity context is well-positioned to meet growth demand by 2025. Overall, these factors reinforce the conclusion that the Bitcoin supply remains stable, making a large supply shock unlikely in the coming year. The report also emphasizes that the market is poised for steady growth within the established 4-year cycle. *Cash and carry trade is a trading strategy in which investors use the price difference of Bitcoin on different exchanges or between the price of Bitcoin and similar assets like Bitcoin to generate profits. Investors can buy Bitcoin on one exchange where the price is lower and simultaneously sell Bitcoin on another exchange where the price is higher, taking advantage of the price difference between markets. Or they can buy Bitcoin and simultaneously short a similar asset, such as Bitcoin futures contracts, to take advantage of the price difference. DYOR! #Write2Earn #Write&Earn $BTC {spot}(BTCUSDT)