5min read
Published on: Apr 26, 2024
#Crypto 360
On 20 April, we witnessed the execution on the fourth halving of the Bitcoin (BTC) network.
That's one small step for Bitcoin, one giant leap for blockchain tech.
An epoch-making event, the cryptocurrency community had been waiting for the halving for several months now.
Now that we are past the moment, it is time we reflect on the significance of this event within the broader crypto sector.
Let's dive right in.
Bitcoin halving is an event that occurs in the Bitcoin network every four years.
What halving does is reduce the Bitcoin mining reward to half.
Let's understand it in detail.
The total supply of Bitcoin is limited to 21 million. That is, only 21 million BTC tokens will ever exist. This is very different from different fiat currencies that have unlimited supplies.
As mentioned above, the halving reduced to half the incentive paid as rewards to miners for validating transactions on the network and adding new blocks on the Bitcoin network.
The process is significant in that it drastically lowers the rate at which a new Bitcoin is created.
In short, halving keeps the quantity of Bitcoin in circulation under control.
After every 210,000 blocks are created on the Bitcoin network, the reward for miners is slashed in half.
Miners are always encouraged to be engaged in the mining process on the blockchain.
As the Bitcoin network has executed its fourth halving, it is time that we look at a few crucial indicators.
The fourth halving marks a key milestone for the Bitcoin / Gold comparison.
It is the first time in history that Bitcoin’s steady-state issuance rate of 0.83% is lower than that of Gold which is at 2.3%.
Bitcoin halving is a vital and thoroughly documented event which will always lead to speculation on how the value of Bitcoin will be affected.
It reduces the amount of Bitcoin in circulation, increasing the value of Bitcoin tokens yet to be mined.
It's always helpful to look at historical returns over similar periods in order to gauge how the current cycle may play out.
1. First Halving: It occurred on 28 November 2012 when the price of BTC was $12.
A year later, it soared to over $1k.
The event reduced the mining reward from 50 BTC to 25 BTC.
2. Second Halving: It took place on 9 July 2016 when Bitcoin’s price plunged to $670 but subsequently rose to $2.550 by July 2017.
Subsequently, Bitcoin hit an all-time high (ATH) of almost $19.7k in December 2017.
The event reduced the mining reward from 25 BTC to 12.5 BTC.
3. Third Halving: It took place on 11 May 2020 which led to the king coin hitting an ATH of $69k within the next few months.
The event reduced the mining reward from 12.5 BTC to 6.25 BTC.
4. Fourth Halving: It took place on 20 April 2024 when BTC was trading around $64k. There has not a major price movement within the few days that have passed so far.
The event reduced the mining reward from 6.25 BTC to 3.125 BTC.
Another factor to take into account is the cycle low up until the Halving.
There is a strong correlation between 2015, 2018 and our current cycle, with each of those time frames experiencing around 200% - 300% increase.
However, this current cycle was the only to break the previous ATH before the halving event.
Epoch 2 saw a significantly larger performance as this was after the first halving and market dynamics were substantially different then compared to today.
Therefore, we should analyse Epochs 2 and 3 for a reliable comparison.
We should also be observant of Bitcoin’s price around the previous halving events relative to the previous ATH.
Price at previous halving events had fallen around 40% - 60% from ATH in previous cycles.
However, if we look at the fourth halving, we realise that the current cycle only saw a drawdown of -12% from ATH of $73k.
We can attribute this phenomenon to the bullish nature leading up to the event caused by the anticipation around and subsequent approval of spot Bitcoin ETFs.
Bitcoin halving disincentivises the rewards paid to miners for validating transactions and adding blocks on the Bitcoin blockchain.
Bitcoin halving occurs on the Bitcoin network every four years once every 210,000 blocks are created on the Bitcoin network, the reward for miners is slashed in half.
So far, it has taken place four times.
The fourth Bitcoin halving took place on 20 April 2024.
It marks a key milestone for the Bitcoin / Gold comparison.
It is the first time in history that BTC’s steady-state issuance rate of 0.83% is lower than that of Gold which is at 2.3%.
This leaves 1,312,500 BTC left to be issued over the next years.
Now that the widely anticipated Bitcoin halving is complete, what we observe is that the market has struck a hesitant tone with some consolidation taking place in the crypto market.
A key element looking at the data gives analysts a sense that Bitcoin did not have the recurring pullback it usually has prior to halving events.
One positive element is that the recent halving cycle only saw a drawdown of -12% from BTC’s ATH of $73k.
Dynamics are different and institutional investment is rampant.
But is Bitcoin in need of a delayed drawdown before the substantial gains for this cycle?
There are two polar opposite views in regard to Bitcoin price projections post the halving.
Bitwise Senior Crypto Research Analyst Ryan Rasmussen said in an interview that the group sees at least a 10%-15% bump over the last ATH in 2024. It would take Bitcoin’s price upward to the mid-80k range. Rasmussen has set the Rasmussen has set the target at $88k by the end of 2024.
JPMorgan analysts, led by Nikolaos Panigirtzoglou, are however not so optimistic about the impact of the recent halving on BTC’s price.
The analysts at JPMorgan said that the event will negatively impact miners' profitability and lead to a higher bitcoin production cost. Post the halving, BTC’s price could plummet to as low as $42k.
Regardless of whether there is a correction in the near term, one thing is certain.
This is only the start of the next epoch and looking at historical price action, we can presume that Bitcoin will still see some major gains over this cycle.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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