Why the Next Bitcoin Halving will be different
With less than 30 days to go until the next Bitcoin Halving, we wanted to look at historical comparisons between the three previous halvings in 2012, 2016 and 2020, their effect on crypto markets and why the next Bitcoin Halving in April will be different this time around.
The Four-Year Cycle
The Bitcoin Halving is a highly anticipated, almost mythical event in the cryptosphere, influencing markets and cryptocurrency prices. As all Bitcoin maximalists will tell you, the Bitcoin supply is finite at 21 million Bitcoin, which makes it ‘sound’ money. By reducing mining rewards as more blocks are mined, bitcoin halvings ensure that the amount of bitcoin in circulation does not increase exponentially, which also tends to put upward pressure on its price.
It takes roughly four years for 210,000 blocks to be mined on the Bitcoin Network. For every 210,000 blocks mined, the reward for mining a block falls by half. Historically, the first set of 210,000 blocks was mined by 2012, and the reward was cut in half to 25BTC. By 2016, the second set of 210,000 blocks was mined, and the reward was cut to 12.5BTC.
Source: Cryptopotato
The last halving occurred in May 2020. Upon completing 630,000 blocks (the third set of 210,000 blocks), the reward dropped to 6.25BTC per block. Next month's upcoming halving will see the mining reward drop from 6.25BTC per block to 3.125BTC. As a result of this reduction, newly minted bitcoins will be created at a much slower rate, further decreasing supply entering the market.
Past Performance
The Bitcoin halvings have served as maturity cycles in the crypto-verse from the early days of cryptopunk enthusiasts to the rise of institutional adoption underway in 2024. With the next halving event approaching, it is important to understand these cycles and what the future may hold. Like any financial product, past performance is not a guide to future returns when it comes to price action. DYOR.
Source: rektcapital
However, as the above graph illustrates, there are four distinct stages of the Bitcoin Halving (using 2020 as an example):
- The Pre-Halving Rally: (circa 60 days before) Bitcoin has performed a never-before-done feat in the Pre-Halving period by breaking to new all-time highs over the past few weeks.
- The Pre-Halving Re-Trace: (28 to 14 days before the halving) This year, Bitcoin experienced a -18% pullback in January, a -14% pullback in early March, and now a -11% pullback is in progress.
- The Post-Halving Re-Accumulation: We may see the same level of re-accumulation in this cycle post-halving.
- The Post-Halving Parabolic Upside. Bitcoin experienced an accelerated growth cycle of up to a year in previous phases.
Based on historical comparisons, the upcoming halving has followed the same playbook as previous cycles when it comes to price action. However, Bitcoin has never reached all-time highs in the pre-halving period so early, so what is driving this historic deviation from previous cycles?
Institutional Demand
This time, Bitcoin Spot ETFs are driving significant demand for Bitcoin, as seen by transfers of assets from Coinbase to storage wallets, not just the Halving. As long as more Bitcoins are leaving exchanges than entering, it could be more challenging to find bitcoins to buy, which could lead to a supply shock after the halving and potentially drive up prices further in the post-halving market.
Source: CryptoQuant
With less than 30 days to go, the upcoming Halving will have very different supply and demand dynamics at play. In many ways, the current lack of supply in the market amplifies ‘historical’ price trends we would expect to see as part of the halving and creates different price pressures than in previous cycles.
Source: Mesmerdata.com
Throwing in the fact that 94% of BTC is currently in profit and we have already reached all-time highs means that we are entering uncharted territory in this halving cycle. Bitcoin is a highly correlated, sentiment-driven market that, in many ways, drags the rest of the cryptosphere along with it. Whatever your beliefs about Bitcoin and its ability to be the saviour of money, this halving marks the beginning of a new epoch for Bitcoin, and it will be an exciting ride.
CeAnn Simpson
