This Bitcoin halving is different from others. Here’s what to know

Just a few years ago, the Bitcoin halving was something celebrated by only the earliest cryptocurrency aficionados, who swore by it as a core feature of a revolutionary, anti-establishment deflationary asset.

Now, bitcoin has been embraced by the biggest institutions on Wall Street and continues to attract curious retail investors in every cycle. From the happy to the confused to the unimpressed, crypto market watchers know this halving is coming and that it must mean something good for bitcoin.

This is a technical event that occurs on the Bitcoin network approximately every four years, which cuts the supply of the cryptocurrency in half to create a scarcity effect that makes it like “digital gold”. Historically, this sets the stage for a new cycle and bull run – but this one is a little different.

“The halving is the ultimate geek event for bitcoiners, but the 2024 iteration takes it up a notch as reduced supply combined with fresh ETF demand creates an explosive cocktail,” said Antoni Trenchev, co-founder of crypto exchange Nexo . “What makes this halving unique is that bitcoin has already surpassed the high of the last cycle – something it has never done before the quadrennial event – making it much more difficult to predict the length and ferocity of this cycle.”

After the 2012, 2016, and 2020 halvings, the bitcoin price rose approximately 93x, 30x, and 8x, respectively, from its halving day price to its cycle peak. Past performance is no indicator of future returns, and some even warn that in dealing with a smaller supply every four years, the days of such a large impact on the bitcoin price are likely behind us.

However, Steven Lubka, head of private clients and family offices at Swan Bitcoin, said “if there was ever a moment to be a little extra optimistic” about returns after the halving, it’s this year.

“This bitcoin bull cycle – which kicked into gear earlier due to the January approval of the spot ETFs – may well be shorter and more explosive, culminating in a peak in late 2024 or early 2025,” Trenchev added.

Whether you’re looking for a deeper understanding of bitcoin as a new, deflationary asset, or simply want to speculate on the bitcoin price in the coming weeks, here’s what you need to know about the halving and its potential impact on the market .

What is happening?

The halving occurs when incentives for bitcoin miners are cut in half, as required by the code of the Bitcoin blockchain. It is scheduled to occur every 210,000 blocks, or about four years.

As a fix, miners run the machines that do the work (which is essentially solving a very complex math problem) to record new blocks of bitcoin transactions and add them to the global ledger, also known as the blockchain.

Miners have two incentives to mine: transaction fees voluntarily paid by senders (for faster settlement) and mining rewards – 6.25 newly created bitcoins, or about $437,500 as of Thursday morning. Sometime between April 18 and April 21, the mining rewards will shrink to 3,125 bitcoins. The incentive was initially 50 bitcoins, but it was reduced to 6.25 in 2020.

The reduction in the block rewards leads to a reduction in the supply of bitcoin by slowing the rate at which new coins are created, helping to maintain the idea of ​​bitcoin as digital gold – the limited supply of which helps determine its value . Eventually, the number of bitcoins in circulation will be limited to 21 million, according to the Bitcoin code.

Market impact now and later

The halving is not like an on-off switch that is flipped at a specific time. Indeed, it is reasonable to think that the day will come and go without much action in the market. Of course, there can certainly be volatility driven by speculators potentially trading on the occasion. Swan’s Lubka cautioned that investors should not confuse this with the technical change taking place.

“I don’t think we’re seeing a big move anyway, but even if there was a big move, it wouldn’t have anything mechanically to do with the halving,” he said. But, “in the months that follow, every day there [will be] something like $30 million in bitcoin less is being sold. It can build up quickly and make an impact over that period.”

That $30 million assumes a bitcoin price of about $70,000.

The one big thing investors need to understand about the halving and its potential impact on the market, Lubka said, is that miners are selling much of the bitcoin they are paid to pay their everyday bills.

“These are very expensive enterprises that have to consume a lot of energy and other things to do their work,” he said. “Miners are constantly selling the bitcoin they mine just to cover costs. When it’s cut in half, there’s no two ways about it: There’s half as much bitcoin being sold from the miners.”

“They are the most frequent sellers,” he added. “Some hedge fund can sell its position … but miners sell every day, every week, every month in predictable quantity – and that pressure is cut in half.”

Diminishing return from halving to halving

Bitcoin has always shot to the moon in the months following its halving – which is what makes it such a celebrated day among enthusiasts. However, every time the mining reward and supply of bitcoin has shrunk, the returns from the halving day to the cycle top have also shrunk.

“Guessing the endgame for bitcoin after each halving is the ultimate sport,” Trenchev said. “What we do know is that every post-halving bull run has seen diminishing returns… Even a measly 2x would put bitcoin around $130,000 – not to be sniffed at.”

This trend could reverse this year, Lubka said, although this will not be the result of the planned supply shock, but rather of the new demand shock. Thanks to the advent of bitcoin exchange-traded funds, demand for the cryptocurrency is greater than ever, according to CryptoQuant.

The data shows that historically, “whale” demand for bitcoin rises after each halving, pushing prices higher. This year, however, that whale demand (which includes OG bitcoiners, new investors, and bitcoin ETF holders) is already at an all-time high, and the block reward hasn’t even been reduced yet.

“The once-significant influence of Bitcoin halving on prices has diminished, as the new issuance of bitcoin becomes smaller relative to the total amount of bitcoin available for sale,” said Julio Moreno, head of research at CryptoQuant. “In contrast…growth in bitcoin demand appears to be the key driver of higher prices following the halving.”