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This Bitcoin Halving Is Different Than Any Other. Here’s What You Need to Know
Just a few years ago, the Bitcoin halving was celebrated only by early cryptocurrency enthusiasts, who swore by it as a defining characteristic of a revolutionary, anti-establishment, deflationary asset.
NOW, Bitcoin Bitcoin has been embraced by Wall Street’s biggest institutions and continues to attract curious retail investors every cycle. From the excited to the bemused to the unimpressed, cryptocurrency market watchers know that this halving is coming and that it must mean something positive for bitcoin.
This is a technical event that occurs on the Bitcoin network roughly every four years, halving the supply of the cryptocurrency to create a scarcity effect that turns it into “digital gold.” Historically, this sets the stage for a new cycle and a price rally, but this one is a little different.
“The halving is the ultimate geeky event for bitcoiners, but the 2024 iteration takes it a step further as the reduced supply combined with new demand for ETFs creates an explosive cocktail,” said Antoni Trenchev, co-founder of cryptocurrency exchange Nexo. “What makes this halving unique is that bitcoin has already surpassed the peak of the last cycle — something it never did before the quadrennial event — making predicting the length and ferocity of this cycle much trickier.”
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Bitcoin (BTC) enters its fourth halving period next week.
After the 2012, 2016, and 2020 halvings, bitcoin’s price increased approximately 93x, 30x, and 8x, respectively, from its halving day price to its cycle peak. Past performance is not indicative of future returns, and some even warn that with a lower supply every four years, the days of such a significant impact on bitcoin’s price are over. are probably already behind us.
However, Steven Lubka, head of private clients and family offices at Swan Bitcoin, said that “if there’s ever a time to be a little more optimistic” about post-halving returns, it’s this year.
“This bitcoin bull cycle, which started earlier due to the January approval of spot ETFs, could well be shorter and more explosive, culminating in a peak in late 2024 or early 2025,” Trenchev added.
Whether you’re looking for a deeper understanding of bitcoin as a new deflationary asset, or simply want to speculate on the price of bitcoin in the coming weeks, here’s what you need to know about the halving and its potential impact on the market.
What is happening?
The halving occurs when the incentives for bitcoin miners are reduced by half, as set out in the Bitcoin blockchain code. It is scheduled to occur every 210,000 blocks, or about four years.
As a reminder, miners operate the machines that do the work (essentially solving a very complex mathematical problem) of recording new blocks of Bitcoin transactions and adding them to the global ledger, also known as the blockchain.
Miners get two benefits from mining: transaction fees voluntarily paid by senders (for faster settlement) and mining rewards — 6.25 newly created bitcoins, or about $437,500 as of Thursday morning. Between April 18 and April 21, mining rewards will be reduced to 3.125 bitcoins. The incentive was originally 50 bitcoins, but was reduced to 6.25 in 2020.
Reducing block rewards reduces the supply of bitcoins by slowing the rate at which new coins are created, helping to maintain the idea that bitcoin is digital gold, with a limited supply helping determine its value. Eventually, the number of bitcoins in circulation will cap at 21 million, according to the Bitcoin Code.
Market impact now and later
The halving is not like an on/off switch that flips at a specific time. Indeed, it is reasonable to assume that the day will come and go without much market action. Of course, there could certainly be volatility fueled by speculators who might trade on the event. Swan’s Lubka cautioned that investors should not mistake this for the technical shift underway.
“I don’t think we’re seeing a big move in one direction or the other, but even if there were, it wouldn’t have anything to do mechanically with the halving,” he said. However, “in the months that follow, every day, there is [will be] “There’s about $30 million less in bitcoin sold. That can add up quickly and have an impact over this period.”
That $30 million assumes a bitcoin price of around $70,000.
The important thing for investors to understand about the halving and its potential impact on the market, Lubka said, is that miners are selling a large portion of the bitcoins they receive in order to pay their daily bills.
“These are very expensive businesses that have to consume a lot of energy and other things to do their job,” he said. “Miners are constantly selling the bitcoins they mine just to cover costs. When that number is cut in half, there’s no question: miners are selling half of their bitcoins.”
“They are the most consistent sellers,” he added. “Some hedge funds might sell their positions… but miners sell every day, every week, every month in predictable amounts – and that pressure is cut in half.”
Diminishing returns from one halving to the next
Bitcoin has always hit record highs in the months following its halving, making it such a celebrated day for enthusiasts. However, each time, as the mining reward and supply of bitcoins have decreased, the returns from the day of the halving to the peak of the cycle have also decreased.
“Guessing the final outcome of bitcoin after each halving is the ultimate sport,” Trenchev said. “What we do know is that every post-halving rally has seen diminishing returns. … Even a measly 2x would put bitcoin around $130,000 — not to be sneezed at.”
That trend could reverse this year, Lubka said, although it would not be the result of the expected supply shock but rather the new demand shock. Thanks to the advent of Bitcoin exchange-traded funds, demand for the cryptocurrency is stronger than ever, according to CryptoQuant.
Data shows that historically, demand for bitcoin from “whales” increases after each halving, leading to a price increase. This year, however, demand from these whales (which includes OG bitcoiners, new investors, and bitcoin ETF holders) is already at an all-time high, and the block reward hasn’t even been reduced yet.
“The once significant influence of the bitcoin halving on prices has diminished, as new bitcoin issuance declines relative to the total amount of bitcoin available for sale,” said Julio Moreno, head of research at CryptoQuant. “In contrast, the growth in demand for bitcoin appears to be the main driver of the post-halving price rally.”