Bitcoin halving is a once-every-four-years software update on the Bitcoin blockchain. The much anticipated event slashes the reward for mining a new Bitcoin in half.
The first Bitcoin halving happened on November 28, 2012, the second on July 9, 2016, and the third on May 11, 2020. The latest instalment of the event happened a couple of weeks back on April 19, 2024. Miners now get 3.125 BTC for mining 1 BTC.
The first Satoshi, the smallest unit of BTC, mined after the latest halving event was put up for auction. Dubbed epic sat, it was mined by Bitcoin mining pool ViaBTC, and fetched 33.3 Bitcoin (around $2.13 million).
Bitcoin halving reduces the rate of new Bitcoin issuance, increasing scarcity over time, explains Bundeep Rangar, CEO, Fineqia.
“This typically leads to heightened market volatility as traders speculate on its implications,” says Rangar. “Historically, halvings have been preceded by an increase in BTC’s price in the short term and succeeded by fluctuations and then a gradual price increase as reduced supply meets sustained or growing demand.”
Diminishing returns
However, the event, once highly anticipated, doesn’t seem to have the same impact on the market as it once had.
“The halving is a well documented part of the Bitcoin protocol,” says Mostafa Al-Mashita, director of sales and trading, Secure Digital Markets. “This event did not creep up on the market, the industry has been patiently waiting for this.”
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Al-Mashita thinks a lot of the price action people were expecting from the halving has been priced in already. He believes that unlike previous halving events, where most of Bitcoin’s appreciation occurs after the halving, the pre-halving run this year has insulated miners. This, he says, will allow most miners to stay profitable beyond the latest halving event.
“Bitcoin’s price is up 120 percent over the last six months, and many miners have reported marginal production costs of around $20,000/BTC,” explains Al-Mashita. “Compared to previous cycles, there are fewer miners that will need to immediately halt operations following this halving.”
A big reason for this is that over the past decade, Bitcoin has been garnering increasing interest and gradually gaining acceptance as an asset by traditional asset managers, says Hao Yang, head of financial products at Bybit.
“More capital is entering the crypto market, increasing its upward trajectory,” explains Yang. “However, we must also recognize that as the market cap of Bitcoin continues to grow, the impact of each halving is diminished.”
Wait for it
That said, Al-Mashita acknowledges that Bitcoin halving has historically been the start of a parabolic cycle. A parabolic market is one that moves forward in an accelerating fashion.
Terence Kwok, founder, Humanity Protocol, believes Bitcoin might be in one. “The nature of Bitcoin halving cycles is such that the effects of the halving aren’t necessarily felt right away, but are experienced more acutely over time,” says Kwok.
He backs this with data from blockchain market intelligence firm Glassnode. It says the supply of new coins has dropped to 450 BTC. This isn’t much when compared to 900 BTC, the four-year daily average pre-halving.
But Kwok says that 450 will compound and add up to a significant amount soon. The day one shortfall of 450 will compound to a shortfall of 3,150 BTC in week one. And will balloon to 164,250 BTC by the end of year one.
“Should demand remain high, which is likely as more jurisdictions approve their own versions of Bitcoin ETFs, this supply crunch may begin to exert significant upward pressure on Bitcoin’s price,” asserts Kwok.
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The current market situation further reassures Kwok. “Historically, bull runs have often been punctuated by large corrections along the way,” says Kwok. “As such, we should anticipate volatility in the coming months.”
Rising tide
Yang, however, believes that with the introduction of ETFs, Bitcoin’s movement has become more traditional.
“However, the volume is going up, and Bitcoin is completing a perfect Cup and Handle pattern,” says Yang. “(This) is so far consistent with the halving timeline.”
Rangar believes Bitcoin’s price action will uplift the broader crypto market as well. Agreeing with Al-Mashita, Rangar says Bitcoin’s price rose 64 percent in Q1 2024 as the market priced in the upcoming halving.
“Following the event, it is experiencing short-term fluctuations driven by speculative trading, though it still trades up 50 percent on a year-to-date (YTD) basis,” says Rangar. Events such as the approval of BTC-based ETFs combined with the supply dynamics, will further appreciate its price.
“The broader crypto market tends to follow BTC’s lead, with positive Bitcoin momentum benefiting other cryptocurrencies,” believes Rangar.
Al-Mashita, too, thinks that this is the novelty of this latest post-halving event. “I think what is new about this cycle is how risk-on capital can flow into the broader Bitcoin ecosystem, not just Bitcoin,” he says. “There’s increased speculation around networks and ecosystem tokens such as STX, RUNE and ORDI, which traders are eyeing for outsized gains compared to BTC.”
Yang, too, believes that market conditions post-halving might force investors to take riskier bets like meme coins and alt coins.
More to Bitcoin than halving
Notwithstanding short-term volatility, Rangar argues Bitcoin’s price trajectory depends on adoption trends, institutional interest, regulatory developments and technological advancements.
“Institutional adoption could drive sustained price support, while regulatory clarity would attract more mainstream investment,” asserts Rangar. “Continued technological innovation, like scalability solutions, enhances Bitcoin’s utility and adoption.”
Read: Bitcoin price likely to hit $100,000 mark in 2024, experts say
This resonates with Sebastian Davies, VP, Research, Aquanow. “We’ve long said that, while the halving is an important psychological catalyst and does have positive supply/demand implications, it matters less than macroeconomic factors,” believes Davies.
He argues that inflation rates and interest rate expectations had previously been favorable to greater market liquidity, but not any more. Davies says that the US Federal Reserve has reiterated its view that rate cuts are likely in 2024. However, he believes traders are growing increasingly skeptical.
“Until we have more clarity around the path of monetary policy, and absent a positive surprise like a positive decision for the ETH spot ETFs, it’s difficult to see crypto asset prices breaking out higher,” says Davies.
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