Bitcoin’s halving rally gives way to worries about geopolitical risks and the Fed’s rate move

The halving was baked into Bitcoin’s price long ago. That much we know.

Now analysts are growing increasingly anxious that the recent rally — a most welcome narrative for investors after a long bear market — will have to overcome a number of challenges to keep going.

And the sobering news is that these obstacles have nothing to do with crypto.

“I’m just not sure what propels us higher near term,” Brian Rudick, senior strategist at crypto trading firm GSR, told DL News.

Up 105%

To be sure, there’s loads of positivity still fizzing in the market. We now live in a world with 10 spot Bitcoin exchange-traded funds in the US. A year ago that looked virtually impossible. And Bitcoin is still up 105% in the last 12 months.

But the “monster retail” inflows for those ETFs have dropped in recent weeks. And the “halving will soon be behind us,” which means the key drivers of the recent rally may be “waning,” Rudick said.

The halving will slash the rewards Bitcoin miners get for maintaining the blockchain, reducing the creation of new coins by half, meaning there will be fewer new tokens hitting the market.

At the same time, the threat of a regional war in the Middle East is rattling investors.

And with US consumer prices not falling as quickly as economists would like, the Federal Reserve may postpone interest rate cuts, which “risk-on” investors in stocks and crypto are counting on for a boost.

Rudick also noted that repatriations from the now-defunct cryptocurrency exchange Mt. Gox are set to pay roughly 142,000 Bitcoin to more than 10,000 creditors.

That may exacerbate prices as creditors seek the return of their funds either through fiat or cryptocurrencies.

Tether is facing pressure from regulators, which could also be a risk, Rudick said.

The largest stablecoin by market capitalisation has been under fire this year, most notably from a UN report that said Tether “a preferred choice” for fraudsters and money launderers in East and Southeast Asia.

Tether responded to the UN report in January, saying it was “disappointed in the UN’s assessment that singles out USDT, highlighting its involvement in illicit activity while ignoring its role in helping developing economies in emerging markets.”

Other analysts have concluded a drop in Bitcoin’s price to $58,000 — levels not seen since the end of February — should the conflict between Iran and Israel escalate.

Positive catalysts

To be sure, the industry could rally if the inflation falls faster than expected, prompting the Federal Reserve to cut interest rates, Rudick said.

Similarly, spot Bitcoin ETF flows could pick up, and investors may buy the bullish halving narrative, he added.

However, Rudick said none of those catalysts “seem too likely.”

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.