Bitcoin and Ethereum closed lower on Thursday, but Ethereum has gained more than 100% since mid-June.
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Just a few years ago, the Bitcoin halving was only something celebrated by the earliest crypto enthusiasts, who firmly believed it was a core feature of a revolutionary, anti-establishment, deflationary asset.
Now, Bitcoin Been embraced by Wall Street’s largest institutions and continues to attract curious retail investors every cycle. From delighted to confused to apathetic, crypto market watchers know the halving is coming and what it must mean for Bitcoin.
This is a technical event that occurs approximately every four years on the Bitcoin network, cutting the cryptocurrency’s supply in half to create a scarcity effect, making it like “digital gold.” Historically, it sets the stage for new cycles and bull markets – but this time it’s a little different.
“For Bitcoin enthusiasts, the halving is the ultimate geeky event, but the 2024 halving takes it up a notch,” said Antoni Trenchev, co-founder of cryptocurrency exchange Nexo. Because reduced supply combined with new ETF demand creates an explosive cocktail.” “What’s unique about this halving is that Bitcoin has already surpassed the previous cycle’s highs — and this was before the quadrennial event. Something that has never happened before – which makes predicting the length and ferocity of this cycle even trickier.”
Bitcoin (BTC) enters its fourth halving next week.
After the halvings in 2012, 2016 and 2020, the Bitcoin price increased by approximately 93 times, 30 times and 8 times respectively from the halving day price to the top of the cycle. Past performance is not indicative of future returns, and some have even warned that the days of halvings that had such a large impact on Bitcoin’s price may be behind us when dealing with a smaller supply every four years.
However, Steven Lubka, head of private client and family office at Swan Bitcoin, said that “if there was ever a time to be more optimistic about investment returns,” it is this year.
Trenchev added: “With the approval of spot ETFs in January, this Bitcoin bull cycle will likely be shorter and more explosive, ultimately peaking in late 2024 or early 2025.”
Whether you want to learn more about Bitcoin as a new deflationary asset or just 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 happened?
According to the Bitcoin blockchain code, a halving occurs when the incentives for Bitcoin miners are cut in half. It is scheduled to occur every 210,000 blocks, approximately every four years.
To recap, miners run machines responsible for recording and adding new blocks of Bitcoin transactions to the global ledger, also known as the blockchain (essentially solving a very complex mathematical problem).
Miners have two incentives to mine: transaction fees that senders voluntarily pay (to speed up settlement) and the mining reward — 6.25 newly created Bitcoins, or about $437,500 as of Thursday morning. Sometime between April 18 and 21, the mining reward will be reduced to 3.125 Bitcoins. The initial incentive was 50 Bitcoins, but was reduced to 6.25 in 2020.
Reductions in block rewards slow down the creation of new coins, thus reducing the supply of Bitcoin, helping to maintain the concept of Bitcoin as digital gold – whose limited supply helps determine its value. According to the Bitcoin code, the number of Bitcoins in circulation will eventually reach 21 million.
Market Impact Now and Next
The halving is not like a switch that turns on at a specific time; It stands to reason that the day will come and go without much action from the market. Of course, there will certainly be volatility from speculators trading on the event. Swan’s Lubka warned investors should not confuse this with the technological changes taking place.
“I don’t think we’re going to see any major moves, but even if there were, it wouldn’t have any mechanical relationship to the halving,” he said. However, “approximately $30 million in Bitcoin will be sold every day over the next few months. This number is likely to increase rapidly and have an impact during this time.”
This $30 million assumes a Bitcoin price of approximately $70,000.
Lubka said one big thing investors need to know about the halving and its potential impact on the market is that miners sell large amounts of the Bitcoin they acquire to pay their daily bills.
“These businesses are very expensive and have to consume a lot of energy and other things to get the job done,” he said. “Miners keep selling the Bitcoin they mine just to cover their costs. When Bitcoin halvenes, there are no two ways about it: the number of Bitcoins miners sell is cut in half.”
“They are the most frequent sellers,” he added. “Some hedge funds may be selling their positions…but miners are selling in predictable amounts every day, every week, every month – and that pressure will be cut in half.”
Diminishing returns from halving to halving
Bitcoin always soars in the months following a halving – which is why Bitcoin enthusiasts celebrate the day. However, every time Bitcoin’s mining rewards and supply decrease, so will the gains from the halving day to the top of the cycle.
“Guessing the outcome of each Bitcoin halving is the ultimate game,” Trenchev said. “What we do know is that there will be diminishing returns in every bull market after halving… Even a mere 2x increase would take Bitcoin to around $130,000 – not to be underestimated.”
Lubka said the trend could reverse this year – although not as a result of a planned supply shock but a new demand shock. CryptoQuant says demand for cryptocurrencies is greater than ever thanks to the emergence of Bitcoin ETFs.
Data shows that historically, after every halving, “whale” demand for Bitcoin surges, pushing up the price. This year, however, demand from whales—including OG Bitcoin holders, new investors, and Bitcoin ETF holders—has reached an all-time high, and block rewards haven’t even been cut yet.
“The significant impact of the Bitcoin halving on price has diminished as newly minted Bitcoins become smaller relative to the total amount of Bitcoin available for sale,” Moreno said. “In comparison… .Bitcoin demand growth appears to be a key driver of post-halving price increases.”
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