Bitcoin (BTC-USD) is slowly recovering after experiencing recent declines from its all-time highs. Benchmark Managing Director and Senior Research Analyst of Fintech and Digital Assets Mark Palmer joins Yahoo Finance Live to discuss the cryptocurrency's pricing patterns ahead of April's expected bitcoin halving event.

Palmer highlights that historical trends suggest the occurrence of a bitcoin halving "is not unusual." He points out that in 2016 and 2020, "significant retracements in price" preceding the bitcoin halving, and the same pattern is unfolding "in the 2024 cycle." Palmer draws an analogy between a bitcoin halving and "a wildfire," explaining that when the rewards paid to miners are halved, it prompts many miners to exit the market, leading to increased volatility.

However, Palmer notes that historically, an extended rally tends to follow after a bitcoin halving event. He also notes "demand shocks" stemming from the approval of spot bitcoin ETFs and the spillover into stocks crypto stock associated with the space's volatility, such as MicroStrategy (MSTR).

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

SEANA SMITH: All right, Bitcoin rebounding on the back of the Fed decision this week. Now trading back above $67,000. Now, the cryptocurrency has certainly been on a wild ride, to say the least, since the approval of spot Bitcoin ETFs earlier this year. And it's also taken many of the crypto-related stocks along for the ride.

But as Bitcoin halving comes into view, could the crypto landscape be set for a new state of mind? We want to bring in Mark Palmer. He is Benchmark senior research analyst.

Mark, it's great to have you here. So we certainly have seen the seesaw action play out over the last several weeks. Not necessarily anything new when we're talking about the price of Bitcoin, but as we look ahead to the halving, what do you think the pricing activity is going to look like?

MARK PALMER: Yes. Well, thanks for having me. Good to talk to you What we are seeing right now is not unusual if you take a step back and look at the history of the halving as an event.

What we saw in two previous halvings, which occurred in 2016 and 2020, is that there were significant retracements in price ahead of that event. In 2016, it was close to 40%. In 2020, it was more around 20%, which is essentially what we've seen in the 2024 cycle.

You know, what's going on here, I think it's a couple of things. One is the uncertainty ahead of the halving when for those who don't know that the Bitcoin halving is when the rewards that are paid to miners for each block that they mine are cut in half. So the profitability of the miners is cut in half and hence a lot of miners tend to leave the market.

It's almost like a wildfire that cleans out the Bitcoin mining space. That means that the amount of computational power or hash rate associated with Bitcoin mining goes down around the world. You end up seeing a lot of volatility around that event.

But again, what's important from our perspective is what has happened historically after the halving. In 2016, we saw that volatility ahead of the halving, then the price of Bitcoin went up 6x-- or in 2016 it was 17x actually. In 2020, it was 6x. The point being that we typically see an extended rally after the halving that goes on for something around 18 months.

BRAD SMITH: Mark, to what extent does the ETFs and the inflows that we've seen and, now more recently, I guess, some of the outflows from ETFs in recent days here, that event and that introduction into the market in itself, what does that introduce in terms of some of the perhaps atypical activity that might take place given that Bitcoin is hitting all-time highs before the halving? And then you've got the ETFs. Both of those things not happening before.

MARK PALMER: Yeah, that's a really good point because the halving itself is a supply shock. The supply of new Bitcoin introduced into the market declines at each time that we have a halving. What we are seeing this go round is also a demand shock with the introduction of 10 spot Bitcoin ETFs, all of the inflows that are associated with that.

Why is that different? Because Bitcoin from its beginnings has been a retail instrument. It's the rare asset class where retail has led, institutions have really lagged behind.

Now we're positioned to see more of a catch up on the institutional front. We're certainly seeing that in terms of the uptick. And yes, it is extending into the stocks that are associated with Bitcoin. A couple of the ones that we cover MicroStrategy and Bitdeer, which is one of the Bitcoin miners, we've seen significant pickup in both of those, which in some cases, MicroStrategy is reflected in a premium to the underlying holdings of Bitcoin that it has. So we're going to see some volatility around all of this as we head into what is really a colossal event for the space.