How this halving will affect Bitcoin

The crypto space is no stranger to price volatility or technical evolutions, and the years since 2022 are indicative of that. Spot bitcoin ETFs may have attracted the most attention and investment, but are just one example of how quickly the sector has developed and matured, and also provides a template for how other cryptoassets can achieve similar results. At the same time, and removed from price speculation that continues to drive investor interest, technical improvements continue to occur in rapid succession.

Said technical improvements include but are not limited to the following. The Ethereum ETH blockchain and community continue to drive operational improvements that will lower costs and allow for increased development over time. Specifically, the lowering of gas fees by the Dencun upgrade will make smart contracts expand even faster than expected. As a result, the potential for enterprise adoption as well as blockchain-based organizations such as DAOs will continue to benefit. At the same time, stablecoins have reached market capitalization levels not seen since 2021, while NFTs continue to make a resurgence after a catastrophic collapse during the previous bull market.

However, one technical upgrade stands apart and distinct from others in terms of the speculation and impact it can have; the bitcoin halving. Let’s take a look at what investors should keep in mind as this opportunity approaches.

Impact for miners and investors

As the bitcoin halving reduces the number of bitcoins awarded to miners by 50%, it would make sense for analysis and market focus around the impact this event has on the price per bitcoin. Predicting price movements, especially for an asset class that is still as emerging and fast-moving as the crypto sector, is also difficult, but investors have evidence that can be useful. In each of the three (3) previous halving events, the price at the end of the year in which the halving occurred exceeded the price at the time the halving occurred, including the halving event that occurred during the most recent bull market during 2020-2021.

The investor impact of the halving seems relatively simple to understand, especially with bitcoin ETFs attracting billions in inflows, but the effect of miners also needs to be explored. With fewer bitcoins being rewarded, this could lead to miners investing more in capital equipment to increase the likelihood of earning these rewards, which in turn could lead to more centralization in the space. Combined with existing political pressures on the industry, this could have unexpected consequences.

Energy consumption and demand

As a result of the halving, which in turn could lead to growing investment and consolidation among bitcoin miners, there is also the potential for even more political scrutiny over operators in this space. With several hearings held regarding the amount of electricity miners use, and a punitive 30% tax still being floated, the reality is that the US bitcoin mining industry needs to be prepared for more scrutiny moving forward. Specifically from an investment and analytical perspective, it should be noted that while US investors – both individual and institutional – have expressed clear demand and appetite for bitcoin, policy makers have not reflected this enthusiasm for the mining industry. Investing in miners has proven to be a volatile play that doesn’t always track crypto prices on a 1:1 basis, and this dynamic is set to become more complicated as consolidation and lower returns emerge.

One item to keep in mind is that as bitcoin becomes an established part of the investment landscape, even on a geo-political scale (see El Salvador), that developing and maintaining a competitive mining industry is very much part of can become national policy. discussions.

Impact on other Crypto

Even as the crypto market continues to grow, expand and mature bitcoin remains a dominant force. Whether measured by price-per-token, market capitalization, social media mentions, investment products or investment dollars bitcoin remains the undisputed leader of the crypto market. Any significant change around bitcoin will always affect sentiment and fund flows for other cryptoassets, and this halving event will be no different. For example, the approval of the spot bitcoin ETFs started a bull market for bitcoin and almost every other crypto asset. The halving will almost certainly have an effect on the crypto sector, both directly and indirectly, and investors would be well advised to monitor the effects in the short and long term.

The halving is coming fast, and crypto investors should be prepared for the short-term and long-term effects of this event.