As the halving approaches, this year’s three major positive factors, “spot Bitcoin ETF, Bitcoin halving, and Federal Reserve interest rate cut”, are about to be realized by more than half.
Written by: River
In 2024, of the three most anticipated positive factors for the market this year - spot Bitcoin ETF, Bitcoin halving, and the Federal Reserve's interest rate cut, the first one has already landed and pushed Bitcoin to break through $70,000, setting a record high.
Now, with the halving approaching, this year’s three major benefits are about to be realized by more than half, which may have an impact on a new round of market evolution. Statistics show that there are less than 5 days left for the fourth Bitcoin halving, which is expected to be on April 20, 2024, when the block reward will drop from 6.25 BTC to 3.125 BTC.
As one of the most important narratives in the crypto industry, the “Bitcoin halving” has always been an important stimulating event that the market has great expectations for. As a new round of halving cycle comes to an end, what should we expect in 2024, and what new variables have emerged in the market?
What impact does the halving have on the crypto market?
We can briefly understand the basic knowledge of Bitcoin halving: Bitcoin's mechanism design determines that the role of miners is extremely important. It is the cornerstone for maintaining the operation of the entire system transactions. Currently, miners' income mainly comes from two parts - block rewards and handling fees.
The block reward starts at 50 bitcoins, and the rule is to halve every four years. It has been halved three times to 6.25 bitcoins. The fourth halving will be in 5 days, and there will be no more block rewards in 2140.
But transaction fees will always exist, so in the future miners’ income will become very simple, with only transaction fee rewards. For this reason, the crypto industry has always been one of the most cyclical industries.
From a historical perspective, each halving is a grand event, especially the first halving cycle of Bitcoin, which saw an astonishing increase of dozens of times. Take the statistical "coin price trend before and after halving" as an example:
132 days after the first halving (November 28, 2012), BTC’s cumulative increase reached 2361%, setting a new all-time high.
One year and five months after the second halving (July 9, 2016) (during which the ICO boom and the “9.4” incident that interrupted the process were born, so the cycle was longer), BTC’s cumulative increase was as high as 2804%, setting a new record high.
However, starting with the third halving in 2020, as the number of industry practitioners, market attention, and the completeness of supporting infrastructure have all improved significantly compared with before, Bitcoin is no longer a niche product limited to geek circles. It is difficult to achieve an increase of dozens of times in size, so it has only increased by about 7 times compared to the halving node.
To summarize briefly:
Before the first halving, geeks in the circle were more concerned about the possibility of Bitcoin being used as electronic cash;
In the second halving cycle, the focus on Bitcoin shifted to its properties as a payment tool, which also triggered a series of debates (the subsequent BCH fork was almost the top trend in the circle);
In the third halving cycle, Bitcoin has become an alternative asset, and the layout of traditional institutions and capital has become the main theme;
Therefore, although the price change is not as large as the previous two halvings, the popularity of Bitcoin's third halving is unprecedented. At the same time, the overall political and economic environment of the world during Bitcoin's third halving also affected its performance:
Under the influence of macro factors, from March 12 to March 13, two months before the halving on May 11, Bitcoin began to fall from $7,600, first falling to $5,500 and fluctuating. Later, it broke through the support point all the way, reaching a minimum of $3,600. The overall market value evaporated by $55 billion in an instant, and the entire network was liquidated for more than 20 billion yuan, accurately realizing the "price halving".
However, after the halving in May, DeFi ushered in a new bull market cycle in the summer, and Bitcoin also surged to $60,000, nearly 7 times higher than when it was halved.
In general, based on historical experience, BTC is very likely to start a new bull market cycle within six months to one year after the halving. It may be difficult to achieve an increase of more than 10 times at its current size, but surpassing the integer level of $100,000 or even $200,000 is still worth looking forward to.
New variables beyond halving
However, at the same time, in the context that Bitcoin has undergone three halvings, the block reward has been reduced to 6.25, and the number of mined blocks has reached more than 19 million, in fact, many situations and many things have reached the point of time to change a new perspective and reconsider.
In particular, compared with previous halvings, there are some new variables worthy of attention in the entire industry and Bitcoin itself.
The mining arms race is intensifying
As we all know, the capital in the circle has always liked to collectively gamble on the "halving event". Factors such as growing computing power, new hardware, and the upcoming reward halving will determine the overall growth of the industry and Bitcoin, especially now:
As of the latest Bitcoin mining difficulty adjustment at block height 836640, the mining difficulty reached 83.13T, almost doubled compared to a year ago.
In this context, the total network computing power has doubled in the past year, and the halving in 10 days has caused the number of bitcoins that miners can mine to drop by 50%. This means that in order to maintain the stability of their operating cash flow, miners must be forced to increase their computing power investment to mine enough BTC to cover their expenses.
This will further lead to a significant increase in network computing power, and the mining difficulty will have to be adjusted upwards to keep the BTC production rate stable, thereby squeezing higher-cost miners out of the market.
According to a CoinShares research report, when the halving is completed in 10 days, the average cost of Bitcoin production for miners may rise sharply, with the median cost exceeding US$42,000. However, due to the surge in Bitcoin prices in the past two months, the production costs of most miners are currently lower than the market price.
Therefore, it is not ruled out that there will be an exception in this halving, that is, the computing power of the entire network will increase rapidly at a steeper slope - since the first Bitcoin halving in 2012, and the subsequent halvings in 2016 and 2020, the computing power usually drops by about 9% after the halving. This situation usually lasts for about six months, followed by a mid-way recovery, and then a surge in activity about a year before the next halving.
This cycle is logical: To remain competitive in anticipation of the halving, miners increased capital expenditures, pushing hashrate significantly above trend. After the halving, miners’ direct income decreased, affecting their capital expenditure cycle.
Miners are essentially engaged in an arms race to purchase and add as many machines as possible, and the impact of the "market price > mining cost" variable on the mining market and the Bitcoin secondary market remains to be seen.
Internal Evolution of the Bitcoin Ecosystem
According to Bitcoin's halving rules, the block reward starts at 50 bitcoins, and the rule is to halve once every four years. It has been halved three times so far and is now 6.25. If it continues to halve, there will be no more block rewards for Bitcoin in 2140.
However, the transaction fee will always exist, so after each round of halving, the block reward will gradually decrease or even approach zero. In the future, the income of miners will become very simple, with only transaction fee rewards.
The prosperity of the Bitcoin ecosystem, especially BRC20, since 2023 has set off a new wave of "BitcoinFi". The activity of transactions within the Bitcoin ecosystem has reached a new peak, thereby boosting a surge in Bitcoin's transaction fee income - currently, the total market value of the three new assets ORDI, SATS, and RATS alone is nearly US$3 billion, and the total number of holding addresses exceeds 90,000.
This wave of Ordinals has introduced a huge amount of funds, users, and developers into the Bitcoin ecosystem through the channel of inscriptions: If Bitcoin previously only had the advantages of "orthodox cognition" and total market value, the inscription wave has directly and significantly increased the richness of new assets in the Bitcoin ecosystem. Human demand for new assets is eternal, and it has also indirectly increased the number of developers and the user base.
In this context, protocol innovations such as Ordinals, along with the conquest of leading projects such as ORDI and SATS, have profoundly affected the fee model of the Bitcoin network - most directly, it has completely changed Bitcoin's economic model and incentive model.
The latest data shows that the current proportion of Ordinals transactions in the total transactions on the Bitcoin chain has basically stabilized at more than 50%, starting from 0 at the beginning of 2023.
This also helped push BTC mining fee income to a five-year high. It should be noted that the historical average data of miners' fee income was only about 2%, and it even reached 40% at the end of last year (it has fallen back in the past three months).
As subsequent block rewards gradually decrease until they approach zero, the importance of transaction fees will become increasingly higher until they eventually become the only source of income.
Therefore, this round of BRC20 is equivalent to a rehearsal in advance. Regardless of whether it is successful or not, along with the subsequent Bitcoin halving, the variables on this road are bound to profoundly change the overall fee model of Bitcoin.
summary
In general, we are now at the end of a new round of halving cycle. This may be the first (or second) time that most practitioners and investors in this round will personally witness and experience the Bitcoin halving "event."
All that is past is prologue. As one of the most important narratives in the crypto industry, the Bitcoin halving has always been a good medicine to boost market confidence. Now that the bull market is approaching, it is still unknown how Bitcoin and this cycle will develop after the halving.
