Morgan Stanley described the crypto winter as a period in which investors have sold their tokens to lock in gains, which caused prices to drop and scared off new investment. The “spring” will come about in part because of a crypto shortage, caused by a phenomenon called “halving.”
Bitcoin miners are rewarded for producing the tokens, but after a set number of transactions are recorded in the blockchain, these rewards are cut in half—and thus so are the number of new bitcoins being created. Halving cycles will continue in bitcoin until there are 21 million tokens in existence, at which time no more of the coins will be mined. Halving tends to occur approximately every four years; the last time was in May 2020.
“By intentionally limiting the supply of new bitcoin, the shortage caused by the halving can affect the price of bitcoin to potentially spur a bull run,” Morgan Stanley’s analysts write. “There have been three such runs on bitcoin since its inception in 2011, each lasting 12 to 18 months after the halving.”
A predictable cycle in token prices occurs with a halving event—a trough usually follows 12 to 14 months after a peak, and winter’s end is usually marked by a 50% increase in price from the low. With the next halving event predicted to occur in April 2024, the bank argues we may already be in a crypto spring marked by recovering prices but weak investor interest. The next bull run could come after the halving, when “crypto summer” would begin.
Of course, since there have been only three halving cycles—and three crypto winters—so far, Morgan Stanley also cautions against relying too heavily on past events to predict the future course of token prices.
Global investment manager VanEck is another firm waiting for the approval of a spot bitcoin ETF. Its CEO and namesake, Jan van Eck, echoed Edelman’s and Morgan Stanley’s arguments in a recent podcast, saying that bitcoin’s halving event, coming at the same time as a possible slew of nine (or more) spot bitcoin ETFs onto the market, make for “a very exciting spring” for cryptocurrency investors.
The spring fever around token prices, ETFs and halving may brighten sentiment toward cryptocurrencies, but it leaves unanswered the most pressing concerns of financial advisors, including the ways cryptocurrencies are best accessed and safely custodied, and how the various forms of income and returns available from digital assets will be taxed—not to mention whether advisors should recommend digital assets to clients in the first place.