The upcoming Bitcoin halving continues to attract bullish predictions.
Analysts are focused on factors that could hinder a significant rally.
Data shows diminishing returns after halving.
Cryptocurrency markets are awaiting the upcoming Bitcoin halving, which will see miner rewards reduced by 50% as bulls push for another price increase. A new market report from cryptocurrency analytics firm CoinGecko shows that the price of Bitcoin has steadily increased after each halving, but with diminishing returns, a dual scenario has emerged.
After the previous three halvings, Bitcoin gained an average of 3,230%, with bulls predicting a price spike tied to the historical event. However, bears and short traders believe that the increase will not be as high as in previous halvings due to supply tightening, selling pressure, cryptocurrency regulations, macroeconomic factors, and more.
Historical trends in Bitcoin prices
The Bitcoin halving trend has dominated the cryptocurrency space over the past few months. From miners and traders’ positions to reserves flowing to centralized exchanges, analysts are linking the price action to a historic bullish event.
The first halving in November 2012 slashed the reward from 50 BTC to 25 BTC. Within a year of the halving, the price surged from $12 to $1,075, an increase of over 8,000%. The second halving in July 2016 lowered the fee to 12.5 BTC, an annual increase of 294%. One year after the halving, Bitcoin price rose from $650 to $2,560.
In May 2020, the third halving reduced the reward to 6.25 BTC and the price from $8,727 to $55,847. Analysts say there are diminishing returns on price action after the halving and how it affects the next halving.
“Although the rise after the third halving was higher than the second halving, the increase in the Fed’s money supply casts a shadow on this situation. By increasing the M2 money supply, the Fed effectively repriced BTC.”
Diminishing returns lead to slowly rising prices
As Bitcoin adoption grows and its market cap increases, the market becomes more saturated, leading to a more efficient price range for the asset. This is because the rate of new inflows of Bitcoin slows down, as there is a limited supply of 21 million.
With 19.6 million assets mined so far, there is still 6.7% of funds left to flow into the market in the future. “This means that if demand exceeds the current inflation rate of 1.74%, the price of Bitcoin will rise. Conversely, at the fourth halving around April 20, 2024, the demand for Bitcoin will only need to exceed its inflation rate of less than 1%.”
