The Bitcoin Halving & Its Significant Impact on the Price of Bitcoin

What’s new in Bitcoin block? Bitcoin halving, we’d say!

The Bitcoin network undergoes a significant change known as “halving” every four years. Let me tell you It is a process that minimizes the rewards for mining new blocks by half. This process is designed for Bitcoin’s protocol to control inflation and cap the total supply at 21 million coins. 

Therefore, halving events are crucial and highly anticipated occasions within the cryptocurrency community, often triggering speculation and market volatility.

The “stock-to-flow” ratio is a crucial concept utilized to measure the current supply of a commodity against the rate of new supply arriving in the market. Each halving event markedly increments this ratio for Bitcoin, which highlights its exponentially rising scarcity. This ratio is widely considered a key indicator of Bitcoin’s long-term valuation.

This metric is compared to that of precious metals like gold. I’d say it improves Bitcoin’s image as the “digital gold” and strengthens its role as a store of value for the digital era.

In this blog post, we’ll talk about the nitty-gritty of Bitcoin halving and its significant impact on Bitcoin price. 

Why Does the Bitcoin Halving Matter for Businesses?

Businesses like exchanges, trading, and institutional investors that are involved in cryptocurrency, have a greater significance for Bitcoin halving. Here are the reasons.

• Supply Dynamics: The first and the most important reason is supply dynamics. The Bitcoin halving process decreases the rate at which new bitcoins are created. It effectively decreases the rate of supply growth. This has implications for supply and demand dynamics. The reduction in the rate of new supply entering the market can potentially lead to increased scarcity and upward pressure on prices.

• Market Sentiment: The Bitcoin halving is often viewed as a bullish event by cryptocurrency enthusiasts and investors. It highlights the maturation and scarcity of Bitcoin as a digital asset. It leads to positive sentiment and increased interest in acquiring or holding Bitcoin.

• Mining Economics: The halving directly affects the profitability of Bitcoin mining operations. As the block reward decreases, miners must adapt their operations to remain profitable. This can lead to changes in hash rate, mining difficulty, and overall network security.

We did some digging, and  here’s what becomes clear when analyzing the Bitcoin chart:

• Bitcoin’s current price is $65,085 USD, with a 24-hour change of +$95 USD (0.15% increase).
• The market capitalization of Bitcoin is approximately $1.28 trillion USD, with a fully diluted market cap of $1.37 trillion USD.
• Bitcoin’s trading volume in the last 24 hours is around $22.07 billion USD, with a volume-to-market cap ratio of 0.0172.

Impact of Bitcoin Halving on the Bitcoin Price

The Bitcoin halving reduces the supply of new Bitcoins, theoretically increasing the price. It’s an economic axiom: if demand remains stable while supply decreases, the price should rise.

According to data from 10x Research, the past three halvings – in 2020, 2016, and 2012 – led to an average 16% price increase over the following 60 days. In 2016, there was initially a 6% decrease, but it rallied strongly throughout 2017.

I believe the halving is linked to price increases due to reduced supply, but investors must wait for a price peak, which typically occurs 500 days after a halving. In recent weeks, Bitcoin has sharply fallen from its record high of over $70,000 to about $62,000. However, it remains a strong performing asset, up 40% so far in 2024, more than double its value from the same time last year.

It’s important to note that while prices ultimately rose after the 2016 and 2020 halvings, they also underwent prolonged dips – so-called “crypto winters” in 2018 and 2022.

I feel the current setup resembles past occasions where there was a sharp rally followed by a peak and subsequent correction, says Neil Wilson, the chief analyst at Finalto. Deutsche Bank analysts wrote on Thursday that the halving was already partially priced in by the market, and they do not expect significant price increases following the event.

The Bitcoin halving is a big deal in the crypto world. Here’s why we think it matters:

• Reduced Rewards: When the halving occurs, the rewards for mining new bitcoins are cut in half. This keeps the growth of the Bitcoin network steady and sustainable over time.
• Limited Supply: With fewer new bitcoins entering circulation, the overall supply becomes more limited. This scarcity can drive up demand, potentially leading to an increase in the price of Bitcoin.
• Market Debate: There’s a lot of talk among analysts and traders about what the halving means for Bitcoin’s price. Some think it will cause a surge in value due to reduced inflation, while others believe the impact is already factored into the market.

Overall, the halving is a key event for Bitcoin and can have significant effects on its price and market dynamics.

The History of Bitcoin Halving – All You Need to Know

The Bitcoin Halving is a process where Bitcoin’s mining reward is cut in half. It occurs approximately every four years as the blockchain network adds 210,000 new blocks. This reduction is designed to gradually decrease the rate at which new bitcoins are introduced into circulation.

Frequency: Approximately every four years, after 210,000 new blocks are added to the blockchain network.

Historical Halvings:

• Nov. 28, 2012: Reward reduced from 50 to 25 bitcoins.
• July 9, 2016: Reward reduced from 25 to 12.5 bitcoins.
• May 11, 2020: Reward reduced from 12.5 to 6.25 bitcoins.
• The recent Bitcoin halving took place on April 20, 2024.

Will There Be Any Negative Effect of Bitcoin Halving?

Now that we have talked about the impact of Bitcoin halving on its price let’s talk about whether there are any negative effects.

Bitcoin mining companies, which handle the energy and equipment costs of validating transactions, will face financial challenges as their reward decreases.

According to Andrew O’Neill, managing director of the digital assets research lab at S&P Global, the reduction in block rewards significantly impacts miners’ revenue, potentially leading to some operations becoming non-profitable and shutting down, especially those with higher energy costs.

Research suggests that for bitcoin mining to remain financially viable, the cryptocurrency must be more widely used globally to increase miners’ revenues through transaction fees. However, this poses a dilemma as increased cryptocurrency usage conflicts with concerns about the environmental sustainability of energy-intensive bitcoin mining.

Critics of Bitcoin also worry about amateur investors being drawn in by price hype following the halving. Despite gaining legitimacy this year, with the SEC permitting ETFs to track their price, SEC Chair Gary Gensler remains cautious, citing Bitcoin’s volatility and association with illicit activities.

O’Neill doubts there will be a significant price surge, noting that the BTC market has evolved since previous halvings, with factors like ETF growth and macroeconomic drivers influencing price.

Professor Carol Alexander from the University of Sussex predicts any price increase from the halving will ultimately be temporary, asserting that Bitcoin lacks intrinsic value and is purely a speculative asset.

Conclusion

Bitcoin halving events are a big deal in the crypto world. They slow down how fast new bitcoins are made, which can change the price and how secure the network is. Folks think the last Bitcoin will be mined around 2140, but before that, the rewards might get smaller. These halvings keep Bitcoin interesting and spark lots of discussion among people in the crypto community. It is an interesting field that keeps folks intrigued.