Bitcoin Halving Myth Debunked: Liquidity Drives Price, Not Supply Cuts

The core of Shanaka Anslem Perera’s argument rests on a critical distinction. While the halving mechanism—which cuts the rate of new Bitcoin issuance by half roughly every four years—is mathematically verifiable and predictable, establishing a causal link to price appreciation is not. “The halving mechanism is mathematically verifiable to near certainty. The causal relationship between halvings and price is statistically unprovable,” Perera wrote. This challenges a foundational belief held by many investors who have long viewed the scheduled supply shock as Bitcoin’s primary price driver.

Perera’s review of historical data reveals that each of Bitcoin’s first four halvings coincided not with the event itself, but with massive injections of global liquidity. The 2013 rally aligned with the Cyprus banking shock, the 2016 cycle with lingering post-financial crisis monetary expansion, and the 2020 bull run with historic pandemic-era stimulus. Perhaps most damning for the traditional view is the 2024 cycle, where the price peak occurred before the April halving. This timing undermines the idea that the halving triggered the rally, pointing instead to the launch of U.S. spot Bitcoin ETFs as a more plausible catalyst for the institutional inflows that fueled the surge.

Perera’s analysis positions Bitcoin not as a fixed-supply commodity responding solely to its own issuance schedule, but as a “high-beta macro asset” whose price is heavily influenced by broader financial conditions. He highlights a September 2024 study from analyst Lyn Alden, which calculated a remarkably high 0.94 statistical relationship between Bitcoin’s price and the Global M2 money supply dating back to 2013. This suggests Bitcoin’s value moves in near-lockstep with the expansion and contraction of global liquidity.

The report notes that Bitcoin tends to rise during periods of expanding credit and fall sharply when liquidity tightens. A prime example cited was the August 2024 unwind of the yen carry trade, where a rapid shift in Japanese interest rates hammered risk assets globally and sent Bitcoin tumbling. This sensitivity to macro liquidity events, like those involving the Japanese yen, reinforces the argument that external monetary forces are more influential than Bitcoin’s internal supply mechanics. Perera cautions, however, that while the correlation is strong, a high degree of association is not definitive proof of a driving mechanism, noting that rigorous econometric scrutiny is still needed.

Further complicating the traditional halving narrative is the observable trend of shrinking post-halving returns. Recent research by CoinGecko found that the 2017 cycle delivered astronomical returns of 29x, while the 2025 rally has been significantly smaller, though still positive. This diminishing magnitude suggests that the market’s response to the halving event itself is weakening over time.

Despite this trend, institutional accumulation continues unabated. The report notes that market leader Strategy acquired an additional 10,624 BTC this week, bringing its total holdings to over 660,000 BTC. This persistent buying by large entities underscores a market increasingly driven by corporate treasury strategies and investment fund allocations rather than retail speculation around a supply shock. Looking ahead, regulatory shifts may become key liquidity channels. Japan’s newly proposed crypto framework, for instance, could eventually funnel sizable household wealth into Bitcoin through ETFs and institutional funds if approved, further decoupling price action from the halving cycle and tying it more closely to global capital flows.