In the current environment of macroeconomic uncertainty, with persistent inflation and a looming cut in the federal funds rate, the ripple effects of the upcoming election cycle, as well as geopolitical tensions and record debt levels, there is one event in the cryptocurrency industry that stands out as a certainty - the fourth Bitcoin halving.
We are just days away from the much-anticipated Bitcoin halving event, which is expected to occur around April 20 at block 840,000 and further cut the block reward to 3.125 BTC.
Bitcoin halving significance:
Bitcoin Halving Roughly every four years, the reward for mining a new Bitcoin block is cut in half. This is done to control the supply of Bitcoin and make it more like a scarce resource like gold. Halving helps keep the value of Bitcoin stable over time by reducing the rate at which new Bitcoins are created.
Bitcoin halving was proposed by its creator Satoshi Nakamoto to control inflation and ensure that the digital currency remains a deflationary asset. Initially, miners received 50 bitcoins as a reward for processing transactions and supporting the blockchain network. After the first halving in 2012, the reward was cut to 25 bitcoins, and subsequent halvings have occurred regularly, with each reward further reduced.
The first halving in November 2012 reduced the reward from (50 BTC to 25 BTC), followed by the second halving in July 2016 (25 BTC to 12.5 BTC), and the most recent in May 2020 (12.5 BTC to 6.25 BTC).
The upcoming fourth halving (6.25 BTC to 3.125 BTC) will see Bitcoin issuance drop from 900 BTC per day (1.8%) to 450 BTC per day (0.9%).
Bitcoin’s past halving cycle data:
The first halving
On November 28, 2012, Bitcoin experienced its first halving, and within a year the price of Bitcoin experienced a significant surge, from around $11 to over $1,000.
Second halving
Following the second Bitcoin halving on July 9, 2016, the price of Bitcoin experienced a staggering surge, soaring from around $650 to nearly $20,000 by the end of 2017.
The third halving
After the third Bitcoin halving on May 11, 2020, the price of Bitcoin soared from around $10,000 to more than $60,000 in less than a year.
Bitcoin’s most explosive gains usually come after halvings
One of the main reasons why Bitcoin’s increase after the third halving was higher than its increase after the second halving was the Fed’s loose monetary policy - by increasing the M2 money supply, the Fed effectively repriced Bitcoin.
Bitcoin’s fourth halving is expected in 2024:
Ahead of the fourth halving event, the price of Bitcoin has surged to an all-time high (ATH), indicating that the market is expecting a rally to be triggered by the halving. As a result, investors are engaging in a race to get ahead of the curve by bidding up the price.
A large number of institutional investors, including heavyweights such as BlackRock and Grayscale, have poured into the market and begun accumulating large amounts of Bitcoin in preparation for the halving. The influx of institutional investors may pose challenges to retail investors seeking to take advantage of this event.
Impact on miners
The block subsidy constitutes the main economic incentive for miners - with the fourth halving approaching, this reward is slashed by 50% from 6.25 BTC to 3.125 BTC, and miners will be stress-tested as their main source of income is reduced (but may still remain profitable, especially if the price of Bitcoin rises).
As a result, transaction fees are expected to play an increasingly important role in miners' revenue, while the value of Bitcoin will also appreciate as demand increases. The halving may lead to consolidation within the mining industry, with small miners forced out of the market and large miners expanding their market share.
With a reduction in mining rewards, transaction fees may become more important to miners' profitability. The halving emphasizes Bitcoin's scarcity, attracting investment and speculation. It reaffirms the principles of Bitcoin as a decentralized, finite, and secure asset, shaping its role in the evolving financial landscape.
In addition, Ordinals’ ability to write data such as images, videos, and text into non-fungible tokens also increases transaction fees for miners. In the first quarter of 2024, miners earned an average of $3 million in transaction fees per day, far higher than historical norms. Miners may see further increases in transaction fee-based revenue after the halving, which could offset the impact of the decline in block subsidies.
in conclusion
As the fourth halving approaches, we note similarities and differences from past cycles, including the involvement of institutional investors. Predicting the future price of Bitcoin is complex and influenced by multiple factors. Objective analysis that combines models, qualitative insights, and market expertise is key to navigating the cryptocurrency space.
In addition, Bitcoin has no shortage of innovations, such as the upcoming Runes and Bitcoin Layer-2 chain, which improve transaction fees and scalability. Bitcoin is ready for the next era.
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Note: All content represents the author's personal views only, is not investment advice, and should not be construed in any way as tax, accounting, legal, business, financial or regulatory advice. Before making any investment decision, you should seek independent legal and financial advice, including advice on tax consequences.
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