The much-anticipated fourth Bitcoin halving event is just around the corner and is expected to occur around April 19, 2024.
This phenomenon isn’t just a quirk of Bitcoin’s design. It’s a fundamental shift in the blockchain’s architecture, cleverly designed to slow down the rate at which new Bitcoins are created.
The mysterious Satoshi Nakamoto orchestrated the halving to cap the token’s supply at 21 million.
Halvings occur approximately every four years, or every 210,000 blocks. They can be seen as milestones toward the final goal of all 21 million bitcoins being mined, which is expected to happen around 2140. So far, the Bitcoin network has produced about 19 million coins, and is getting closer and closer to the final number.
A recession may occur after the halving
The upcoming Bitcoin halving is widely considered to be one of the most positive indicators in the cyclicality of the market.
Brian Dixon, CEO of Off the Chain Capital, highlighted a key difference between past and present halvings. Historically, retail investors have primarily driven demand for the asset. However, the current landscape encompasses a wider range of players. These include institutional investors, public companies, and even sovereign governments, he noted.
“The dramatic increase in the types of interested parties compared to past halvings is likely to create strong buying pressure,” Dickson told Cryptonews.
According to Dixon’s analysis, the optimal configuration window for Bitcoin falls within the six months before the halving. It also typically extends 12-18 months after the event. In this period after the halving, Bitcoin has clearly hit new all-time highs in past cycles. Dixon expects this trend to likely continue in the 12-18 months after the halving.
However, Anthony Georgiades, general partner at Innovating Capital, is more cautious. He has observed a historical pattern where each halving is preceded by a price rally. After the halving, prices continue to rise for about 90 to 180 days. However, this upward trend is always followed by a sharp price correction.
He believes that this pattern becomes a self-fulfilling prophecy. Suppose that market participants overwhelmingly expect a price surge before the halving, followed by a crash. In this case, their buying behavior will be driven by expectations of an uptick. Similarly, their selling will be driven by expectations of a subsequent recession.
MicroStrategy’s Bitcoin Proxy Role Diminished
DLC.Link CEO Aki Balogh downplayed the halving’s direct impact on Bitcoin demand.
However, he acknowledged that marketing efforts by larger companies such as MicroStrategy and BlackRock could increase public awareness among both institutional and retail investors.
Balogh also said that MicroStrategy's role as a proxy for Bitcoin investment may be reduced in the future. He believes that for some investors, buying Bitcoin directly through an ETF is a more transparent option. Investors prefer this method compared to acquiring shares in a company like MicroStrategy, whose board of directors may have undisclosed goals.
Miner Centralization
Every four years, the number of Bitcoins awarded to miners is cut in half. Since miners are the primary source of new Bitcoins entering circulation, this effectively reduces future supply by 50% over the next four years.
Jesper Johansen, CEO of Northstake, said the halving will also cause fluctuations in the network’s hashrate, as miners using older equipment or facing higher operating costs may be forced offline due to reduced profitability.
He expressed concern that this could exacerbate the trend towards centralization, with large mining pools benefiting from economies of scale and further concentrating computing power.
He said the potential for mining centralization raises two key issues. First, entities with significant control over the mining process could censor transactions by selectively refusing to confirm them. This goes directly against Bitcoin’s core principles of decentralization and censorship resistance. Second, centralized mining pools could have undue influence over decisions about protocol updates or modifications.
Further maturing as an asset class
The 2024 Bitcoin halving will reduce the previous mining reward by 50%. Still, it will unfold in a significantly different context than previous halving events.
Unlike earlier halvings in 2012 and 2016 (when Bitcoin was still a relatively obscure phenomenon) or the 2020 halving, which took place amid pandemic-induced economic dislocation, the current event occurs against the backdrop of rapidly growing mainstream adoption and evolving regulatory frameworks.
Leo Smigel, personal finance expert at Analyzing Alpha, vividly recalled the anticipation of the first Bitcoin halving in 2012.
“When the halving happened and the block reward dropped from 50 BTC to 25 BTC, I had no idea what would happen,” he said. “The price was about $12 at the time — cheap pizza and all. But over the next year, we saw the first real Bitcoin bull run take off. By December 2013, 1 BTC topped $1,100!”
As institutional investors finally enter the cryptocurrency market, demand seems poised to rise.
So while short-term price fluctuations are inherently unpredictable, Smigel said the halving has strengthened his confidence in Bitcoin’s long-term viability as the digital equivalent of gold.
Bitcoin attracts developers across the ecosystem
Bill Laboon, director of education and governance initiatives at the Web3 Foundation, expects the bitcoin mining sector to go through a period of consolidation because the halving will make the least efficient miners unprofitable.
While a sudden 50% reduction in production would be detrimental to businesses in many industries, Laboon acknowledged that the halving is a planned event and miners may have time to prepare for its impact.
He also described it as a social event. He believes that the halving can unite not only Bitcoin developers, but also developers from other blockchain ecosystems, thus fostering a sense of community. Not only does this stimulate the interest and boost morale of existing developers, but the high level of attention also attracts new developers to join the Bitcoin ecosystem.
