As the Bitcoin Halving period draws closer, several analyses have been put forward by different crypto platforms, enthusiasts, and investors, ahead of the event.
Bitcoin halvings are a pivotal event in the Bitcoin ecosystem that significantly impacts its supply, demand, and price. The event involves reducing the mining rewards given for adding new blocks to the blockchain.
What is Bitcoin Halving?
Bitcoin halving is a programmed event in the Bitcoin network that involves the reduction if reward given to miners for processing transactions and adding new blocks to the blockchain.
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Occurring approximately every four years, this event reduces the rate at which new bitcoins are generated. The primary purpose of halving is to control Bitcoin’s supply, ensuring it remains finite with a maximum cap of 21 million coins.
Halving affects Bitcoin by potentially increasing its value over time due to the reduced supply of new coins entering the market, aligning with the principles of supply and demand. This event is essential to Bitcoin’s deflationary nature, making it an intriguing asset that mimics the scarcity properties of precious metals like gold.
However, after every 210,000 blocks or roughly four years, there is a halving wherein miner rewards get slashed by half. This process makes Bitcoin supply diminish over time, making it a digitally scarce asset with each passing event of the halving. Notably, three Bitcoin halvings have occurred since Bitcoin’s inception in 2009, with the last halving occurring in 2020.
A look at the previous halving events
- The first halving occurred on November 28, 2012, when the block reward was reduced from 50 to 25 Bitcoins. This event was followed by a notable increase in Bitcoin’s price, a pattern that has been observed with subsequent halvings. The 2012 halving saw Bitcoin’s price soar from about $12 to over $200 within a year.
- The second halving took place on July 9, 2016, reducing the reward to 12.5 Bitcoins, and was again followed by a significant price surge in the following year. After the 2016 halving, Bitcoin reached a high of about $19,700 in December 2017.
- The most recent, the third halving, occurred on May 11, 2020, further reducing the reward to 6.25 Bitcoins. Following the May 2020 halving, Bitcoin’s price eventually hit nearly $69,000 in November 2021. Each halving event has led to speculative anticipation, increased media attention, and considerable price volatility leading up to and following the event.
According to estimates, the next halving event is expected to occur in April 2024. This will be the fourth halving in Bitcoin history. During this event, mining rewards will decrease from the current 6.25 Bitcoin per block to 3.125 BTC per block added to the blockchain.
While history may not repeat itself, with previous halving outcomes, it certainly rhymes. Previous halving events have led to increase in price, which is usually caused by the upcoming supply shock. Also, it is worth noting that the current cycle sees new demand sources, particularly from institutional investors through newly launched spot Bitcoin ETFs.
Thomas Fahrer, Co-founder of ApolloSats, a network that allows bitcoins to review products they love, find those they can trust and earn, has urged crypto investors to keep stacking more Bitcoin ahead of the halving event.
He wrote,
“Bitcoin is in the exact opposite position of when it was 67K in 2021. FTX was short the market, flooding it with paper BTC. Interest rates were set to rise. We were years from a halving. The ETFs were just a dream. This is the complete reverse. A perfect setup. Keep stacking.”
As we approach the April 2024 halving event, investors are urged to prepare for increased volatility, possible consolidation within the mining industry, and potentially consequential shifts in the broader cryptocurrency market.
Here is an overview of previous scenarios of the Halvings event
- Increased volatility: As evidenced by past data, bitcoin has experienced significant price moves during halving years. While, historically, those moves have been higher, the opposite could occur.
- Consolidation within the bitcoin mining industry: Lower block rewards may impact less efficient miners’ profitability, possibly causing some to cease operations.
- Potential for higher prices in other cryptocurrencies: While the halving is specific to bitcoin other cryptocurrencies have made notable moves during halving years as well. Ether, which has historically maintained a strong correlation to bitcoin prices, rose from $129.63 to $737.80 during the 2020 halving, a 469% increase.
While price increases have followed past halvings, investors are advised to approach this year’s halving event cautiously, as numerous factors can influence the outcome.
Experts predict a varied impact of the 2024 halving on Bitcoin’s price, with some analysts suggesting it could drive the price to $160,000 influenced by factors like the spot exchange- traded fund (ETF) hype. However, risks remain, and the exact outcome is uncertain.