At 8:15 am on April 20, as the Bitcoin network reached block 840,000, Bitcoin completed its fourth halving. Before this halving, Bitcoin miners could receive a reward of 6.25 Bitcoins for each successful block; after the halving, this number dropped to 3.125 Bitcoins.
As the pioneer of the crypto industry, every Bitcoin halving has attracted the attention of global investors and market analysts. Bitcoin halving is a core mechanism designed to control its supply by reducing mining rewards to ensure the scarcity and value of Bitcoin. This process occurs automatically every four years, halving the number of newly generated Bitcoins each time until the total number reaches 21 million. This mechanism not only reduces the speed of new Bitcoin issuance, but also effectively curbs inflation.
Since the birth of Bitcoin in 2009, mining rewards have been reduced from 50 BTC to 3.125 BTC per block, experiencing four halvings. Previous halvings have significantly increased the market value of Bitcoin, as reduced supply pushes up the price while demand remains unchanged. The next halving is expected in February 2028, when the block height will reach 1,050,000. This time point depends on the actual mining speed of blocks, although the mining algorithm targets a block time of 10 minutes, the actual time may fluctuate.
How is this halving different from past ones?
Recalling the last round of halving crypto bull market, it was a bull market driven by the release of US dollars.
In early 2020, the COVID-19 pandemic hit the U.S. economy, causing a sudden decline and a sharp rise in unemployment. Against this backdrop, the Federal Reserve launched a combination of monetary policy tools called "zero interest rate + quantitative easing," which drastically lowered the lower limit of the federal funds rate twice in a row, from 1.5% to zero, and announced unlimited purchases of Treasury bonds and MBS (mortgage-backed securities). This is the second time the Federal Reserve has started a large-scale monetary easing process since the 2008 "subprime mortgage crisis."
As a result of that monetary "water release", the size of the Federal Reserve's balance sheet expanded 1.1 times in 26 months, from US$4.2 trillion at the end of January 2020 to US$9 trillion at the end of March 2022, an increase of 48,000 US dollars. One hundred million U.S. dollars. The absolute scale of "water release" far exceeds that during the 2008 sub-credit crisis. More importantly, after these two currency "water releases", the trend of price, an important macroeconomic indicator, showed significant differences. In the same year, the conflict between Russia and Ukraine triggered a rapid rise in global energy and food prices, which also contributed to the situation.
With more hot US dollar money, it will inevitably flow into various markets around the world, including Bitcoin.
Bitcoin rose more than 300% in 2020, with a nearly 50% increase in December alone. Since then, Bitcoin has soared more than 120% since the beginning of 2021, hitting a then-high of nearly $65,000 in mid-April, kicking off a roller coaster trend.
In April, U.S. cryptocurrency exchange Coinbase went public, with a first-day valuation of $86 billion, the largest cryptocurrency company IPO to date. Bitcoin prices fell 35% in May before soaring to an all-time high of $69,000 in November.
The rise of the Bitcoin ecosystem
In addition, we can see that compared with the past, more transaction scenarios have appeared on Bitcoin since last year, and the Bitcoin ecosystem has provided new profit opportunities for miners.
Since the beginning of 2023, the Bitcoin ecosystem has been revitalized after the NFT protocol "Ordinals" created by software engineer Casey Rodarmor was officially launched on the Bitcoin mainnet. The popularity of the Bitcoin ecosystem has increased the income of miners a lot, so there have been rumors that miners are the main driving force of the Bitcoin ecosystem. Many people half-jokingly say that "the Bitcoin ecosystem is a conspiracy of miners." On this issue, Waterdrop Capital CEO Jademont (Dashan) expressed his views to BlockBeats: "This is not a conspiracy at all, but an open conspiracy of miners."
In Dashan's opinion, as an important participant in the Bitcoin ecosystem, miners are very motivated to improve the Bitcoin ecosystem or increase their profits and income by building the Bitcoin ecosystem. It's just that in the past, Bitcoin's infrastructure was not enough to support other things on it besides mining and transfers. But the Taproot upgrade in 2021 gave Bitcoin a better scalability and variability enhancement. Technically speaking, it makes it possible for Bitcoin to make some innovations and applications. The birth of Ordinals and the emergence of new technologies such as PBST and MAST all benefited from that Taproot upgrade. This also gave rise to the development of various sidechains and second-layer (L2) solutions, such as RGB, Lightning Network, and BITVM, which are all developments that miners want to see and actively promote.
Dashan also mentioned some specific examples to illustrate the active participation of miners: "The US mining giant Marathon Digital launched its own Bitcoin Layer 2 network, which clearly demonstrated the contribution of miners to the development of the ecosystem. In addition, several EVM-compatible Layer 2 projects we invested in, such as Merlin, BEVM, and BSquare, have received strong support from miners, helping these projects' TVL to grow rapidly. This is not only because miners have a large amount of idle Bitcoin, but also because they are very willing to build an infrastructure in the Bitcoin ecosystem that is comparable to Ethereum Layer 2."
According to the on-chain data, although the overall crypto market is not doing well, the transaction volume on Bitcoin has been extremely active since April, and the gas fee has been on an upward trend. This also means that after two low periods, the third wave of Bitcoin ecology is coming.
In the third wave of Bitcoin ecology, the community has not only begun to realize that the Bitcoin ecosystem still lacks richer and more advanced infrastructure. In order to meet the growing demand, the Bitcoin ecosystem has begun to move towards a more "virtual to real" development path, including Bitcoin Layer 2, Bitcoin DeFi, and Bitcoin cross-chain technology, which together constitute the BTCFi ecosystem.
On the other hand, the Runes protocol is also the main force of this wave. As the "singularity" of the "Big Bang" of the Bitcoin ecosystem, Casey's influence is unmatched in the entire Bitcoin ecosystem. As a brother protocol of the Ordinals NFT protocol, the Runes protocol, which is used specifically for issuing coins, has a strong consensus. The Runes protocol itself carries a strong consensus foundation. As this consensus continues to strengthen, the increase in asset value has become a market consensus.
With the development of more Layer 2 solutions and DeFi application ecosystems in the Bitcoin network, miners can earn transaction fees by participating in transaction verification and network maintenance on these platforms. This not only opens up new sources of income for miners, but also promotes further optimization and functional expansion of the Bitcoin network.
The West dominates this round of market
In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing of Bitcoin spot ETFs, which will have a profound impact on this round of crypto bull market and Bitcoin price trends after halving. In the past, the complexity of Bitcoin and the lack of support from the traditional financial industry have deterred many investors, especially retirees. Now, with the entry of heavyweight financial institutions such as BlackRock and Fidelity Investments, Bitcoin is gradually gaining recognition in the mainstream market.
In addition, Bitcoin ETFs not only provide an investment channel that follows traditional financial regulations, greatly simplifying the process of investing in Bitcoin, but also provide a safe investment method that complies with regulations. It enables large investors such as hedge funds, pension funds, family offices and sovereign wealth funds to invest in Bitcoin with greater confidence while complying with their own investment policies and risk management requirements. Although the listing of an ETF will not immediately make all investors embrace Bitcoin, it does significantly reduce the difficulty of entering the market.
The impact of Bitcoin ETFs has already begun to be felt, especially against the backdrop of surging demand. The Bitcoin ETF issued by BlackRock attracted $10 billion in funds in the first seven weeks alone, setting a new record for financial product issuance. This achievement was achieved more than two years after the first gold ETF was listed in 2004. Currently, all Bitcoin investment products in the world control more than 1 million Bitcoins, accounting for 5% of the circulating supply.
From another perspective, the Bitcoin player community is growing. Canada, the United States, and Hong Kong have approved Bitcoin ETFs. Although Hong Kong's ETF did not directly drive up Bitcoin prices, it reflects that Bitcoin has been officially regarded as an investment product. As a result, more and more people are starting to participate by buying Bitcoin or investing in Bitcoin-related mining machines and other ecosystems. In general, Bitcoin's consensus is increasing, the number of participants is increasing, and the opportunities and funds are expanding.
This also means that the demand for Bitcoin ETFs may far exceed the existing supply. In the first few months, the daily purchase volume of ETFs was 10-12 times the daily new mining output. If this strong demand continues, the market impact of Bitcoin ETFs may be greater than the significance of halving.
Dongfang has "stepped down" from the mining altar
After communicating with friends who are very familiar with the mining industry, BlockBeats found that the difference between this halving and the last one in 2020 is that the structure of the mining industry has changed dramatically. "During the halving in 2020, China still controlled more than 60% of the world's computing power. Now, China is no longer involved in this industry."
Looking back at the market reaction after the last halving: the price of coins rose, the market activity increased greatly, and the price of mining machines also rose accordingly. Miners actively entered the market, and the mining craze was unprecedented. At that time, the market turmoil and emotional fluctuations were fully demonstrated under the impetus of halving. However, the situation after this halving is completely different. The lack of support from Chinese mining farms makes it seem that mining machines have nowhere to go.
He went on to explain: “During previous halvings, many old mining machines were relocated from Inner Mongolia and Xinjiang to Sichuan to take advantage of local hydropower resources. This periodic migration and equipment renewal was once the norm in the industry. But in this halving, we are facing an unprecedented situation - both new and old machines are having difficulty finding a suitable place to stay, forcing the entire industry to carry out more extensive equipment renewal.”
In the early days of Bitcoin mining, miners behaved much like traders in the stock market: they would rush to buy mining machines when the market was bullish, and they would stop using their equipment when market sentiment was low. Many mining farms chose to withdraw during the market downturn, and some even became extremely frustrated and began to sell their assets at a low price. However, with the development of the mining industry, most miners are still mining even in a bear market, but they may have suspended their original plans to expand their factories.
In today’s mining market, there are almost no new miners entering the market, especially in China. Mining now almost requires going overseas, which is too high a threshold for domestic miners.
In Dashan’s view, the change in miners’ mentality in Bitcoin mining has been particularly significant in recent years, especially since the domestic mining ban was implemented in 2021. Before the mining ban in 2021, miners were in a very comfortable state, lying around and earning Bitcoin every day. But after 2021, miners will basically be in two states: either they are completely resigned and withdraw from the industry, or they are already resigned and forced to go overseas for various hardships.
“The final situation is that small and medium-sized miners are basically eliminated, and many of them have changed from miners to coin hoarders and buyers of cloud computing power. Now only the relatively top players can continue to survive in the mining industry by relying on scale advantages,” Dashan told BlockBeats.
Therefore, in this context, Dashan does not recommend small miners or small-scale mining projects to enter the market now unless there is a clear advantage in energy. "Because mining is essentially an energy game, small players have no advantage in energy. If you are optimistic about the future prospects of Bitcoin, buying Bitcoin directly or adding very low leverage is actually similar to mining, but don't add high leverage."
How big of an impact will the halving have on prices?
Bitcoin halving not only has a significant impact on miners, increasing their cost of obtaining Bitcoin. At the same time, halving is also seen as a catalyst for the growth of Bitcoin's investment value. Looking back at the previous halvings of Bitcoin, we can find that the price of Bitcoin has risen sharply in the six months after the halving.
First Halving (November 28, 2012): At the time of the first halving in 2012, Bitcoin’s market price was around $12. The incident caught the market's attention, and over the next six months, the price of Bitcoin increased nearly tenfold to around $130. This significant increase reflects the strong impact the halving has on market psychology and investor behavior.
Second Halving (July 9, 2016): By the second halving in 2016, the price of Bitcoin had stabilized at around $660. Within half a year of the halving, the price steadily increased to $900. During this period, Bitcoin’s maturity and market acceptance increased significantly.
Third Halving (May 11, 2020): The third halving occurred in 2020, when the price of Bitcoin was $8,600. With the change in the global economic environment and wider market acceptance, the price of Bitcoin doubled in the next six months, breaking through $15,700.
Recently, the global crypto market has been affected by many factors, especially the interference of war factors, which has led to abnormally weak market performance. In this context, the price fluctuation of Bitcoin has become a hot topic for investors and traders. Top traders and so-called "order-leading gods" have wide differences in their views on the future market trend, and their predictions are full of uncertainty.
But in this chaos, how do miners view the future of Bitcoin? A friend who is very familiar with the mining industry told BlockBeats that the current situation is obviously not a real bull market. "Mining machine manufacturers are now selling machines at almost cost price, and mainstream mining equipment has not yet been updated. The proportion of electricity costs has reached more than 60% after the halving, which is obviously not a sign of a bull market. A real bull market should be when mining machines have reasonable profits and the proportion of electricity costs for miners can be reduced to 10% to 20%."
Regarding the long-term prediction of Bitcoin prices, he remains cautious and optimistic: "I think it is very likely that Bitcoin will reach $100,000, although this is only a guess based on the analysis of the proportion of electricity costs in the past and present. If we were to predict the time range in which the Bitcoin price might reach, I would estimate it to be between the end of this year and the first half of next year. Of course, this is still just a guess based on historical data, and the actual market movement may be different."
In addition, as a co-founder of F2Pool and an OG in crypto, Shenyu assessed in May last year that it was in the "early stages of a bull market" and that the absolute bottom of the bear market had passed. It believed that the cryptocurrency industry was in a state of searching for new narrative logic and development.
Now, nearly a year later, Shenyu said in a recent interview, "From the current stage of this cycle, it is likely that we are in the middle of the bull market. The market has begun to pick up and has found a new narrative logic, but it is not yet in a state of very high leverage and FOMO."
However, Shenyu also reminded readers that since the market is a dynamic, multi-party complex system, relying on a single indicator or historical data to predict the market top is often not suitable for the current situation. He suggested that the best practice is to continue to observe market developments and rebalance and reallocate assets when a certain stage is reached. This approach can help keep a stable mentality when the market falls rapidly or enters a bear market, and may increase their absolute rate of return.
Similarly, although Bitcoin has been dragged down in the short term due to war factors and the impact of the US stock market correction, Dashan is also very optimistic about the price trend of Bitcoin and firmly bullish. "We think that a very rare correction before the halving is very healthy for the entire Bitcoin trend. It is just around the corner to break through the previous high again, because the fundamentals have not deteriorated at all, and are even getting better."
As for the specific price forecast, Dashan expressed great confidence: "There will be no problem with the previous high of more than 70,000. The key point is around 100,000. 100,000 is a psychological threshold, and many people will deliver their chips around this level. After the ETF was approved, the trading volume of Bitcoin did not increase significantly, but we believe that when it approaches 100,000 US dollars, the trading volume will increase. At this psychological threshold, many old investors and long-term holders will sell. This is exactly the best time for traditional investors to enter the market, because they can buy a lot of goods around this level without pulling the price."
According to the forecast, $100,000 for Bitcoin may be the real starting point of this bull market. As for whether the price can further rise to $150,000 or $200,000, it is difficult to say accurately, but the possibility of reaching $150,000 is very high, and $200,000 is not impossible.
That’s all for today’s article. If you like it, please follow us. See you next time!
