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Just a few years ago, Bitcoin's halving was something celebrated only by early crypto enthusiasts, who swore by it as a key feature of revolutionary, anti-establishment deflationary assets.
now, Bitcoin It has been embraced by the largest institutions on Wall Street and continues to attract curious retail investors every cycle. From elated to bewildered to unimpressed, cryptocurrency market watchers know that this halving is coming and that it must mean something good for Bitcoin.
This is a technical event that occurs on the Bitcoin network approximately every four years, halving the supply of the cryptocurrency to create a scarcity effect that makes it like “digital gold.” Historically, it sets the stage for a new cycle and an upward wave – but this cycle is a little different.
“The halving is the ultimate nerdy event for bitcoin users, but a repeat in 2024 takes it up a notch because reduced supply combined with new demand for ETFs creates an explosive cocktail,” said Anthony Trenchev, co-founder of cryptocurrency exchange Nexo. “What makes this halving unique is that Bitcoin has already surpassed the high of the last cycle – something that has never happened before the quadrennial event – making trying to predict the length and ferocity of this cycle much more difficult.”
Bitcoin (BTC) enters its fourth halving period next week.
After the halvings in 2012, 2016, and 2020, Bitcoin's price rose about 93x, 30x, and 8x, respectively, from its halving price on the day to its highest cycle. Past performance is no indication of future returns, and some even warn that when dealing with a lower offer every four years, the days of such a significant impact on Bitcoin's price are likely already behind us.
However, “if there is a moment to feel more optimistic” about returns after the halving, it is this year, said Stephen Lupka, head of private clients and family offices at Swan Bitcoin.
“This Bitcoin bull cycle — which started earlier due to the January approval of spot ETFs — may be shorter and more explosive, peaking in late 2024 or early 2025,” Trenchev added.
Whether you're seeking a deeper understanding of Bitcoin as a new deflationary asset, or you 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?
Halving occurs when the incentives offered to Bitcoin miners are cut in half, as stipulated by Bitcoin's blockchain code. It is scheduled to take place every 210,000 blocks, or approximately four years.
As a refresher, miners operate 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 have two incentives for 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. Sometime between April 18 and April 21, mining rewards will shrink to 3,125 BTC. The incentive was initially 50 BTC, but was reduced to 6.25 in 2020.
Decreasing block rewards reduces the supply of Bitcoin by slowing the pace of new coin creation, which helps maintain the idea of Bitcoin as digital gold – its finite supply helps determine its value. Eventually, the number of bitcoins in circulation will reach 21 million, according to Bitcoin Code.
Market impact now and later
The half is a bit like an on-off switch that is flipped at a specific time. In fact, it is reasonable to believe that the day will come and go without much movement in the market. Of course, there may certainly be volatility driven by speculators who may trade in this event. Swan's Lupka cautioned that investors should not confuse this with the technical change taking place.
“I don't think we see a big move in either direction, but even if there was a big move, it wouldn't have anything mechanical to do with the halving,” he said. However, “in the following months, each day (there will be) approximately $30 million less bitcoin sold. That could quickly accumulate and have an impact over that period of time.”
The $30 million figure assumes a Bitcoin price of around $70,000.
The big thing investors need to understand about the halving and its potential impact on the market is that miners are selling a lot of the bitcoins they get in order to pay their daily bills, Lupka said.
“These companies are very expensive, and they have to consume a lot of energy and other things to do their work,” he said. “Miners are constantly selling the bitcoins they mine just to cover costs. When that gets halved, there's no two ways about it: half the amount of bitcoin is sold to miners.”
“They are the most regular sellers,” he added. “Some hedge funds can sell their position…but miners sell every day, every week, every month in predictable amounts – and that pressure is cut in half.”
Diminishing returns from halving to halving
Bitcoin has always reached the moon in the months following its halving – which is what makes it a day celebrated among enthusiasts. However, every time the mining reward and Bitcoin supply shrink, the returns from the halving day to the top of the cycle also shrink.
“Guessing Bitcoin’s endgame after each halving is the ultimate sport,” Trenchev said. “What we do know is that every bull run after the halving has seen diminishing returns. … Even a trivial two-fold would put the price of Bitcoin at around $130,000 – something that should not be underestimated.”
This trend could reverse this year, although that would not be the result of a planned supply shock but rather a new demand shock, Lupka said. Thanks to the rise of exchange-traded funds, demand for cryptocurrency is greater than ever, according to CryptoQuant.
Data shows that historically, demand for Bitcoin rises after each halving, causing prices to rise. However, this year, demand for whales (which includes Bitcoin OG users, new investors, and Bitcoin ETF holders) has reached an all-time high, and the block reward has not been reduced yet.
“The significant impact of the Bitcoin halving on prices has diminished, as new issuance of Bitcoin has become smaller compared to the total amount of Bitcoin available for sale,” said Julio Moreno, head of research at CryptoQuant. “In contrast… growth in demand for Bitcoin appears to be the main driver of the price rise after the halving.”
