The Next Bitcoin Halving: Key Insights for Investors

The concept of the bitcoin halving was once a niche celebration confined to the earliest adopters of cryptocurrency, who viewed it as an integral part of a groundbreaking, anti-establishment financial instrument designed to combat inflation.

Today, bitcoin has garnered significant attention from major financial institutions on Wall Street and beyond, continuing to attract interest from retail investors with each passing cycle. Everyone has their eyes on the bitcoin halving countdown. Observers of the cryptocurrency market, ranging from enthusiasts to skeptics, are aware that the upcoming halving event is anticipated to positively impact bitcoin’s value.

BTC Halving Study

The halving, a fundamental mechanism of the bitcoin network, occurs approximately every four years, halving the amount of new bitcoins entering circulation. This scarcity mechanism is intended to emulate the properties of “digital gold.” While previous halvings have traditionally initiated a new market cycle and a surge in bitcoin’s price, the 2024 halving presents new variables.

According to one notable industry analyst, BTC halving is not just a pivotal event for enthusiasts; it’s enhanced by the coinciding surge in demand from newly launched ETFs, creating a potent mix for the market. The analyst also notes that bitcoin’s value surpassing its previous cycle’s peak prior to the halving is unprecedented, adding complexity to predictions regarding the cycle’s duration and intensity.

Reflecting on the previous halvings in 2012, 2016, and 2020, which saw significant multiples in bitcoin’s price from the halving day to the cycle’s peak, it is clear that past performance is not always indicative of future results. There is speculation that the diminishing returns in successive halvings might indicate that the most dramatic price impacts may have already occurred.

Nevertheless, another well-renowned analyst suggests that current conditions could warrant an optimistic outlook for this cycle. Given the recent approval of spot ETFs, which accelerated market dynamics, we might see a shorter, yet more vigorous bull run, the analyst said.

For those looking to deepen their understanding of bitcoin as a pioneering deflationary asset, or for those interested in speculative investment, understanding the implications of the halving is crucial.

What is the halving?

The halving reduces the rewards for bitcoin miners by half, a change hardcoded into the bitcoin blockchain, scheduled every 210,000 blocks or about every four years.

To recap, miners are the operators of the hardware that secures and processes transactions on the blockchain by solving complex computational problems. They are compensated through transaction fees and mining rewards. Currently, miners receive 6.25 bitcoins per block, but this will decrease to 3.125 bitcoins following the next halving, anticipated to occur between April 18 and April 21. Originally, the reward was 50 bitcoins, which was reduced to 6.25 bitcoins in the last halving in 2020.

The diminishing block rewards inherently slow down the creation of new bitcoins, reinforcing bitcoin’s characteristic as digital gold — a concept underpinned by its finite supply that ultimately contributes to its valuation. According to the protocol written in the bitcoin code, the total number of bitcoins will never exceed 21 million.

Market Impact: Immediate and Future Considerations

The halving event is not a sudden switch that triggers immediate market changes. It is likely that the day of the halving itself might pass without significant price movements, although speculative activities could still lead to volatility. The real impact of the halving tends to manifest gradually over time. Following the halving, the market could see significantly less bitcoin being sold daily, amounting to about $30 million less at current prices around $70,000 per bitcoin.

One crucial aspect for investors to grasp about the halving is its effect on bitcoin miners’ economics. Mining is an expensive operation that consumes a lot of energy, compelling miners to sell a significant portion of their mined bitcoins to cover operational costs. With the reward halving, the amount of bitcoin they sell will halve as well, markedly reducing the selling pressure from these regular sellers.

Diminishing Returns and Increasing Demand

Historically, bitcoin has surged following its halving events, a trend that has been widely celebrated by cryptocurrency enthusiasts. Yet, with each halving, the subsequent returns from the day of the halving to the peak of the cycle have diminished. While even a modest double in price post-halving would place bitcoin around $130,000, the pattern of decreasing returns has been consistent across past events.

However, this year might present a reversal of this trend, not due to the supply cut itself but because of a significant increase in demand. The introduction of bitcoin exchange-traded funds has expanded the market demand substantially. Data indicates that demand from large investors, including long-time bitcoin holders, new participants, and ETF investors, is currently at an unprecedented high even before the halving reduces the block reward.

This shift suggests that while the influence of halving events on bitcoin prices may have waned due to the relative decrease in new bitcoin issuance, the growth in demand appears to be a more significant factor driving prices up in this cycle.

Disclaimer:

This article is provided for educational purposes only. Users should exercise caution when investing in or dealing with cryptocurrencies and do thorough research beforehand.