The upcoming bitcoin halving is different from others before it.
INTRODUCTION
The upcoming bitcoin halving is different from others before it. Here’s what investors need to knowJust a few years ago, the bitcoin halving was something celebrated by only the earliest cryptocurrency lovers, who swore by it as a core feature of a revolutionary, anti-establishment deflationary asset.
Now, bitcoin
has been embraced by the biggest institutions on Wall Street and continues to draw curious retail investors in each cycle. From the gleeful to the perplexed to the unimpressed, crypto market watchers know this halving is coming and that it must mean something good for bitcoin.
This is a technical event that takes place on the bitcoin network roughly every four years, cutting the supply of the cryptocurrency in half to create a scarcity effect that makes it like “digital gold.” Historically, it sets the stage for a new cycle and bull run – but this one’s a little different.
“The halving is the ultimate geek event for bitcoiners, but the 2024 iteration takes it up a notch because reduced supply combined with fresh ETF demand creates an explosive cocktail,” said Antoni Trenchev, co-founder of crypto exchange Nexo. “What makes this halving unique is bitcoin has already surpassed the last cycle’s high — something it’s never done ahead of the quadrennial event — which makes trying to forecast the length and ferocity of this cycle much trickier.”
What’s happening?
The halving occurs when incentives for bitcoin miners are cut by half, as mandated by the code of the bitcoin blockchain. It’s scheduled to take place every 210,000 blocks, or roughly four years.
As a refresher, miners run the machines that do the work (essentially solving a very complex math problem) of recording new blocks of bitcoin transactions and adding them to the global ledger, also known as the blockchain.
Miners have two incentives to mine: transaction fees that are paid voluntarily by senders (for faster settlement) and mining rewards — 6.25 newly created bitcoins, or about $437,500 as of Thursday morning. Sometime between April 18 and April 21, the mining rewards will shrink to 3.125 bitcoins. The incentive was initially 50 bitcoins, but that was reduced to 6.25 in 2020.
Diminishing returns from halving to halving
Bitcoin has always shot to the moon in the months following its halving — that’s what makes it such a celebrated day among enthusiasts. However, each time the mining reward and supply of bitcoin has shrunk, so have the returns from the halving day to the cycle top.
“Guessing the endgame for bitcoin after each halving is the ultimate sport,” said Trenchev. “What we do know is each post-halving bull run has seen diminishing returns. ... Even a measly 2x will put bitcoin around $130,000 — not to be sniffed at.”
Market impact now and later
The halving isn’t like an on-off switch that gets flipped at a specific time. Indeed, it’s reasonable to think that the day will come and go without much action in the market. Of course, there certainly could be volatility driven by speculators who may be trading on the event. Swan’s Lubka warned that investors shouldn’t confuse that with the technical change taking place.
“I don’t think we see a big move either way, but even if there were a big move, it’d have nothing to do mechanically with the halving,” he said. However, “in the months that follow, every day there [will be] something like $30 million in bitcoin less being sold. That can build up fast and make an impact over that time period.”
