Bitcoin halving cycle ends! Wintermute: Liquidity has replaced scarcity as the market's main driver

The four-year cycle of Bitcoin has historically followed a simple rule: halving rewards means increased scarcity, which in turn leads to higher prices. However, this week, Bitcoin’s price has hovered just above $100,000, down about 20% from its October peak of over $126,000. This old adage no longer holds up. Market maker Wintermute has now publicly expressed a previously undisclosed view: the four-year cycle driven by halving no longer applies.

The Golden Decade and Collapse of the Bitcoin Halving Theory

The logic behind Bitcoin halving was once straightforward and elegant. This pattern persisted for over a decade: every four years, the network cuts miners’ rewards in half, tightening supply, which then sparks speculation and pushes prices to all-time highs. After the first halving in 2012, Bitcoin surged from about $12 to $1,000. Following the 2016 halving, prices rose from $650 to $20,000. The 2020 halving saw Bitcoin break $69,000.

This regularity made halving the most important calendar event for crypto investors. Countless analysts, traders, and institutions based their strategies around the halving schedule. But the April 2024 fourth halving seems to have broken this spell. Since that event, the Bitcoin issuance per block has stabilized at 3.125 BTC, or roughly 450 new coins daily. At current prices, that’s about $45 million worth of Bitcoin per day.

While that sounds like a substantial daily supply, compared to the scale of institutional capital flowing through ETFs and other financial products, it’s negligible. Just a few ETFs can absorb $1.2 billion worth of Bitcoin in a single day—25 times the daily new issuance. Even regular weekly net inflows often match or exceed the total new Bitcoin issued in a week. This massive difference in scale fundamentally alters the supply-demand dynamics.

Bitcoin halving still matters—it significantly impacts miners’ economics by halving their revenue, forcing less efficient miners out and raising the network’s security threshold. But in terms of market pricing, the landscape has shifted dramatically. The limiting factor is no longer the new coin supply but how much capital flows through regulated channels.

ETF Capital Flows and Price Trends: A Perfect Correlation

(Source: Wintermute)

Recent Bitcoin price movements have aligned perfectly with a key indicator: ETF capital flows. As of the week ending October 4, global crypto ETF fundraising hit a record $5.95 billion, mostly from U.S. funds. Just two days later, daily net inflows reached $1.2 billion, another record. This influx coincided almost exactly with Bitcoin climbing toward its all-time high of nearly $126,000.

Later that month, however, inflows slowed, and the market retreated. By early November, due to mixed ETF data and reduced net flows, Bitcoin’s price fell back toward $100,000. The similarity is striking but no coincidence. Over the years, Bitcoin’s halving has been the clearest model for understanding its supply-demand mechanics. Today, ETF capital flows have become the primary driver of price movements.

Kaiko Research’s October report captures this shift in real time. In mid-month, a sudden deleveraging wave wiped out over $50 billion in crypto market cap, caused by a sharp drop in order book depth and a reset of open interest to lower levels. All signs point to a liquidity shock—not supply tightening. Bitcoin’s decline wasn’t due to miner sell-offs or upcoming halving cycles but rather a disappearance of buyers, unwinding of derivatives positions, and a thinning order book amplifying the impact of each sell.

Currently, price rallies tend to start during U.S. trading hours, when ETF activity is most intense. Since Kaiko’s product launch, this pattern has persisted. While European and Asian liquidity remains important, it now mainly serves as a bridge to U.S. trading hours rather than an independent driver. This geographic concentration indicates that Bitcoin’s pricing power has shifted into the hands of U.S. institutional investors.

Stablecoins and Leverage Reshaping Market Dynamics

Stablecoins add another layer of stability to this new liquidity economy. Depending on the data source, the total supply of dollar-pegged tokens hovers around $280 billion to $308 billion, effectively becoming the base currency of the crypto market. Historically, stablecoin supply growth has closely tracked asset prices, providing collateral for leveraged positions and instant liquidity for traders.

If Bitcoin halving limits new inflows of BTC, stablecoins open the floodgates for demand. Every expansion of stablecoin supply signals new buying power entering the market, while contractions suggest capital outflows and potential price pressures. Monitoring stablecoin supply changes has become a key indicator of market direction—possibly more so than halving itself.

This dynamic also explains shifts in market volatility. Past halving events saw prolonged, gradual rallies fueled by retail enthusiasm riding on decreasing supply. Today, Bitcoin can swing by thousands of dollars in a single day, driven by ETF inflows or outflows. Liquidity is now primarily from institutional investors, but it’s volatile, transforming what used to be predictable four-year cycles into short-term, intense liquidity-driven swings.

Three Features of the New Market Structure

• Geographic Concentration: U.S. trading hours dominate price discovery; Europe and Asia serve mainly as connectors.
• Institutional Dominance: ETF daily absorption capacity is 25 times miners’ daily issuance; retail influence diminishes.
• Amplified Volatility: Leverage and liquidity crunches cause more dramatic, unpredictable price swings.

Data from CoinGlass’s futures funding rates and open interest show leverage remains a key volatility factor, amplifying both upward and downward moves. When funding rates stay high for extended periods, traders are paying a premium to hold long positions, making markets vulnerable to sharp reversals. October’s decline was driven by rising financing costs and ETF redemptions, highlighting how fragile this structure is when liquidity dries up.

Looking Ahead: Liquidity Cycles and Price Ranges

In the coming months, Bitcoin’s trajectory will hinge on liquidity factors. The baseline scenario is that, with steady ETF inflows and slow stablecoin growth, Bitcoin will fluctuate between $95,000 and $130,000. If bullish conditions emerge—such as record ETF inflows or regulatory approvals—prices could climb above $140,000.

Conversely, if liquidity dries up—manifested by multi-day ETF outflows and shrinking stablecoin supply—Bitcoin could retreat toward $90,000 as leverage resets. These outcomes are not driven by miner issuance or proximity to halving but by the speed of capital inflows and outflows through regulated channels, replacing the old supply-centric paradigm.

Bitcoin has evolved into a liquidity-sensitive asset. This may disappoint those who once saw halving as a cosmic event, a countdown to wealth. But for an asset now held by institutions, included in ETFs, and traded alongside stablecoins—its maturation is evident. The halving cycle isn’t gone; it’s just been downgraded.

Block rewards still halve every four years, and some traders still reference this. But the real trend has shifted. If the past decade taught investors to watch the halving clock, the next ten years will teach them to follow the flow of capital. Bitcoin’s new calendar isn’t four years; it’s measured in billions of dollars moving in and out of ETFs, stablecoins, and other liquidity channels. Miners still mark time, but now, the rhythm is dictated by capital.