How Bitcoin Halving Affects Price and Investor Sentiment

The Bitcoin halving is a critical event in the cryptocurrency market, where the rate of new BTC supply issuance is halved. This reduction is expected to increase scarcity and possibly drive up the price, especially if demand remains constant or increases.

The upcoming Bitcoin halving has generated considerable interest and speculation, with many experts predicting significant price increases.

How the next Bitcoin halving will affect prices

Historically, Bitcoin has seen significant price increases after halving events, although not immediately. Hannah Phung, principal data analyst at SpotOnChain, told BeInCrypto that price spikes tend to occur around 6 to 12 months after halving.

For example, after the first halving in November 2012, the price rose from around $12 to over $1,000 by late 2013. Similarly, the second halving in July 2016 sent the price of Bitcoin soaring from around $650 to nearly $20,000 by December 2017. The third halving in May 2020 saw the price rise from around $8,000 to a high of increased by $69,000.

“In theory, the reduction in supply increases scarcity, which consequently drives up the price, especially if demand remains stable or increases. Additionally, the reduced supply also means that miners have less BTC to sell to cover their costs, reducing selling pressure,” Phung emphasized.

Read more: What happened at the last Bitcoin halving? Predictions for 2024

The cryptocurrency market has evolved significantly since these earlier halving events. With wider acceptance and growing institutional interest. Indeed, the demand for Bitcoin exchange-traded funds (ETFs) may add additional complexity to price dynamics as well as the possible easing of monetary policy.

For these reasons, some analysts predict that Bitcoin’s price may rise to $200,000 or $500,000. However, the exact timing and scale is still unclear.

“While past trends provide some insight, the cryptocurrency market is unpredictable. There is no guarantee that the upcoming halving will follow the exact pattern of previous ones. The Bitcoin market is much larger and more established compared to earlier halvings. Still, I am very optimistic about a price increase after the halving, but the exact timing and magnitude remains uncertain,” Phung added.

Market sentiment as a barometer for BTC price

Market sentiment typically undergoes distinct phases leading up to and following a Bitcoin halving. Pre-halving anticipation builds, leading to generally bullish sentiment. Post-halving, sentiment may experience a short-term boost as the reduced supply of new BTC begins to take effect.

Investors should pay attention to various indicators during these phases to gauge market sentiment and potential price movements, including technical analysis, news and social media, and chain analysis.

“Technical indicators such as price charts and trading volume can provide insights into market sentiment. Meanwhile, news and social media discussions surrounding Bitcoin and the halving may reveal investor sentiment. The analysis of on-chain data, such as active addresses or exchange inflows/outflows, can also indicate investor behavior. Finally, net inflows into Bitcoin ETFs indicate buying behavior,” Phung explained.

Read more: Bitcoin Halving Cycles and Investment Strategies: What to Know

According to Phung, investor behavior also shows notable changes in response to Bitcoin halvings. Increased risk tolerance, a focus on long-term ownership and the entry of institutional investors are common trends.

While a surge in purchases due to FOMO (fear of missing out) may be short-lived, the increasing institutional involvement indicates a focus on long-term ownership that could lead to a more mature market with lasting impact. This narrative surrounding the halving may encourage institutions to view the reduced supply as a positive factor for long-term price appreciation.

However, institutions are likely to approach Bitcoin investing with robust risk management strategies. They can weigh the potential benefits against the inherent volatility of the asset.

“While Bitcoin offers the potential for high returns, it also carries higher risk compared to most traditional assets. So, investors should carefully assess these trends and correlations when integrating Bitcoin into their investment portfolios,” Phung concluded.

Read more: Bitcoin Halving Countdown

As a long-term store of value, similar to gold, Bitcoin’s limited supply and decentralization appeal to investors seeking inflation hedges. The integration with traditional financial systems further legitimized Bitcoin. Given these market conditions, the upcoming Bitcoin halving could lead to increased price stability in the long term due to reduced supply.