March 27, 2024 Bitcoin halving.
If you are interested in Bitcoin, you’re probably familiar with the term. But what exactly is it, and what does it mean for the Bitcoin ecosystem and price?
This article will cover everything you need to know before the upcoming event. We’ll explain the theoretical and technical aspects, review past halving events, and conclude with our predictions for the forthcoming Bitcoin split and valuable tips for traders to implement accordingly.
If you’re a novice or a pro, there is something helpful in this article for everyone. Let’s start!
To understand the halving event, it’s crucial to know Bitcoin’s underlying technology, the blockchain, and its logic.
The Bitcoin network consists of powerful computers known as nodes. Their role is to validate transactions in the blockchain and group them into structures called blocks. Once a block is confirmed and sealed, it’s linked to the other existing blocks, and a new block is immediately created. This chain-like structure of informative blocks is essentially what the blockchain is.
This rigorous process performed by the nodes, confirming the legitimacy of transactions and recording data on the blockchain in exchange for rewards, is usually referred to as Bitcoin mining. The more miners there are, the more decentralized and secure the blockchain will be, as it becomes less susceptible to failure from a single source or a 51% attack.
Bitcoin mining uses a protocol called proof-of-work (PoW). In this process, nodes compete to see who can solve complex mathematical puzzles the fastest. The winners of this ongoing competition earn the right to approve transactions and register them into the block. Once a block is sealed, miners share the profits (technically mining reward plus transaction fees) in proportion to the number of transactions they validated in the block.
Bitcoin halving refers to scheduled events in which the mining rewards for each block are sliced off by 50%. These events are programmed to happen every 210,000 blocks. Since new blocks are programmed to be created every 10 minutes, mining rewards are cut by half roughly once every four years. With a maximum supply of 21 million coins, the last halving event is expected to occur sometime in the year 2140, according to this timetable (trust us, we did the math).
In theory, each halving event should spark a surge in BTC price as a reduced supply stream meets the same buying demand. With that, lower mining rewards also threaten to cause some miners to shut down operations due to lower economic incentives, thus making the ecosystem more centralized with all that entails.
So, what happened in the past? Or likely to happen now?
Lucky for us, since its launch in 2009, Bitcoin has already undergone three halving events from which we can learn.
After understanding halving and its implications for the circulating supply, let’s review all past halving events and see if they can help us make accurate price predictions for the near future.
The first halving event reduced rewards per block by 50% – from 50 to 25.
Back then, the Bitcoin ecosystem was still in its infancy, and the developing Bitcoin community was watching anxiously for the first halving event. Except for technical glitches, early investors were primarily worried about the effects of slicing up block rewards on less profitable miners since they were expected to shut down operations and potentially destabilize the entire ecosystem.
As the halving went through successfully and the Bitcoin network proved its resiliency, 2013 was a good year for BTC, starting one of its first significant bull runs out of many. Overall, the price of BTC rose from the $12-$13 price range to $213 by April 2013 and reached over $1,000 by the end of the year.
The second halving event reduced miners’ incentives by another 50%, resulting in 12.5 BTC per block rewards.
Generally speaking, the second halving event was similar in many ways to the first one. Investors were expecting a surge in price due to the shrinking supply. However, they were still anxious about the effects of smaller block rewards on decentralization and the overall efficiency of the blockchain.
Like in the first halving event, BTC traded mostly sideways for a few months before starting an enormous bull run in 2017, with its price surpassing the $20,000 mark for the first time.
The most recent halving sliced block rewards by yet another 50%, rewarding miners with 6.25 BTC per block. Speculation grew after the last two events as traders were more prepared and anticipated another bull run to follow the third halving.
Although Bitcoin was enjoying a positive market sentiment at the time, both retail and institutional investors started to adopt Bitcoin as a hedge against inflation, but this didn’t seem to be reflected in the price action of BTC. In the first six months following the halving, BTC traded sideways between the $9,000 and $13,000 price range. It was only half a year later, in mid October 2021, when prices started to take off and surpassed for the first time the $60,000 mark by the end of the year.
While it’s evident by looking at the data to see the positive effects of Halving events on price, it’s important to note that the halving events don’t occur in a vacuum.
From the Cyprus bailout of 2013 to the rise of altcoins in 2017 and the start of NFT fever in 2021, Bitcoin was never short of narratives supporting a positive market sentiment contributing to the supply-demand dynamics.
The bottom line is that it’s essential to acknowledge that although halving events are pivotal and important moments, they are also highly anticipated and unsurprising. As such, they don’t tend to be very dramatic, and their immediate effect on the market is usually limited.
So, what does it mean for the upcoming halving?
The upcoming 4th Bitcoin halving event is expected to occur on April 19th once the validation of block number 840,000 is complete. This halving would reduce rewards by another 50%, to 3.125 BTC per block. On that day, there are expected to be about 19.7 million BTC in circulation, leaving just around 1.3 million BTC to be released to the market by the year 2140 through mining rewards.
With BTC recently setting a new all-time high, it is safe to say that no halving event created more buzz than the upcoming one, with some experts naming the $100,000 price mark as an attainable goal by the end of the year. With estimated inflows of more than $50 billion just from January (and counting), experts cite the approval of Bitcoin spot ETFs as the significant contributor in continuing and pushing demand upwards, thus creating a supply scarcity.
That said, it’s essential to acknowledge that while history tends to repeat itself, it doesn’t guarantee anything regarding future events, as this halving event is substantially different from the previous ones.
With a market cap of over $1 trillion and retail and institutional adoption at their highest levels in history, Bitcoin is a different species than in its earlier days. It is now in the big boys’ league, making it much more affected by factors outside the crypto world.
This is why traders should know that BTC is not the only financial instrument lingering around its all-time highs. Both gold and most major stock indexes (including the U.S. S&P 500, Europe’s Stoxx 600, and Japan’s Nikkei 225) are currently trading at their highest. This situation leads many experts to believe that prices across markets are artificially inflated and that a significant downturn is soon bound to happen, with analysts from JP Morgan even suggesting the $42,000 price mark as a reasonable scenario for the months ahead.
As past events have shown us, bull runs after halving events tend to start only after the reduced supply meets a substantial growth in demand that is usually attributed to market trends and other macro factors. Since prices seem to be driven more by demand than supply, it would be wise for traders to assess whether the growing demand narrative is convincing before deciding about their short—and long-term trading strategies.
Before leaving you with our valuable tips, let’s summarize things for now.
On the one hand, we have an ever-growing demand for Bitcoin, pumped by a rapid stream of inflows through spot ETFs and a growing disbelief in fiat currencies with limitless supply and rising inflation.
On the other hand, many experts call for an “everything bubble” with expectations for a market downturn or healthy price corrections across various markets, citing Bitcoin and other cryptocurrencies specifically.
While it’s undoubtedly helpful to have a clear view of where the markets are heading, the beauty of Cornix’s trading tools is that they thrive under market uncertainties. With the help of Cornix’s wide selection of trading bots, traders can stay in the game regardless of market conditions.
The Cornix DCA bot, for example, is gaining traction as optimistic traders expect Bitcoin to demonstrate some volatility while having an overall positive (or at least neutral) trajectory for the future. If correct, this strategy could be quite lucrative since these market conditions are nearly perfect for the DCA trading strategy.
If traders anticipate a sideways trend before the next big move (like the 2020 event), the Cornix Grid Bot may help them capitalize on these short-term price fluctuations.
With Cornix’s TradingView and Signals Bots, traders can develop more advanced trading strategies or copy experts’ strategies. This will enable them to capitalize on market volatility without accurately determining where the markets are heading next.
Whichever option you choose, there is no better time than now for traders to start utilizing automatic trading and capitalize on this once-every-four-year opportunity.
To sum up, all past halving events positively affected BTC price in the year following the event. In most cases, the effect is not immediate and takes a few months to unfold, as other contributing factors kick in to boost demand high enough to create substantial buying pressure to lift prices upwards.
The halving event is just another chapter in the Bitcoin journey. It is up to you to decide where you see its story end and, more importantly, how you fit into it, ideally to early retirement.
With Cornix trading tools, the potential exists; there is no better time than now to join the automatic revolution.
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