Just a few years ago, Bitcoin halving was something celebrated only by early cryptocurrency lovers, who swore by it as the core feature of a revolutionary, anti-establishment deflationary asset.

now, Bitcoin It has been embraced by Wall Street’s biggest institutions and continues to attract curious retail investors at every turn. From the euphoric to the worried to the impressed, crypto market watchers know that this halving is coming and that must mean something good for Bitcoin.

This is a technical event that occurs on the Bitcoin network approximately every four years, halving the supply of the cryptocurrency to create a scarcity effect that makes it similar to “digital gold”. Historically, it sets the stage for a new cycle and bull run – but this one is a little different.

Antoni Trenchev, co-founder of crypto exchange Nexo, said, “The halving is the ultimate geek event for bitcoiners, but the 2024 iteration takes it up a notch as demand for fresh ETFs combined with supply shortages explodes. Makes a great cocktail.” “What makes this half unique is that Bitcoin has already surpassed the last cycle high – something it has never done before the quadrennial event – which is the length and severity of this cycle. makes trying to predict more difficult.”

After the 2012, 2016, and 2020 halvings, Bitcoin’s value increased by approximately 93x, 30x, and 8x, respectively, from its halving to its cycle top. Past performance is not indicative of future returns, and some even warn that dealing with a smaller supply every four years, the days of such large impacts on bitcoin’s price may be behind us.

However, Steven Lubka, Swan Bitcoin’s head of private clients and family offices, said that “if ever there was a moment to be a little bit extra optimistic,” it’s this year.

“This bitcoin bull cycle — which began in January with the approval of spot ETFs — could be shorter and more explosive, peaking in late 2024 or early 2025,” Trenchiff added. will”.

Whether you want to take a deeper look at Bitcoin as a new, inflationary asset, or you just want to speculate on Bitcoin’s price in the coming weeks, here’s how to halve it and the market. Need to know about possible side effects.

What is happening?

A halving occurs when incentives for Bitcoin miners are halved, as mandated by the code of the Bitcoin blockchain. This is supposed to happen every 210,000 blocks, or about four years.

As a refresher, miners operate machines that record new blocks of Bitcoin transactions and add them to a global ledger (essentially solving a very complex math problem) called a block. Also called China.

Miners have two incentives to mine: transaction fees that are voluntarily paid by senders (for faster settlement) and mining rewards — 6.25 newly minted bitcoins, or Thursdays. About $437,500 as of morning. Sometime between April 18 and April 21, mining rewards will shrink to 3.125 bitcoins. Initially the incentive was 50 bitcoins, but in 2020 it was reduced to 6.25.

The reduction in block rewards reduces the supply of bitcoins at the rate at which new coins are created, helping to perpetuate the concept of bitcoin as digital gold – the limited supply of which determines its value. I help. Eventually, the number of bitcoins in circulation will reach 21 million according to the bitcoin code.

Market influence now and later

Halving is not like an on-off switch that flips at a certain time. In fact, it’s reasonable to think that day will come and go without much market action. Of course, there can certainly be volatility by speculators who are trading on the event. Swan’s Lubka cautioned that investors should not confuse this with technological change.

“I don’t think we see a big move either way, but even if there was a big move it wouldn’t have anything to do with the mechanical halving,” he said. However, “in the months that follow, something like $30 million of bitcoins are being short-sold every day. It could escalate and have an impact over that period.”

He assumes a $30 million bitcoin is worth about $70,000.

One big thing investors need to understand about the halving and its potential impact on the market, Labka said, is that miners sell a lot of bitcoin to pay their daily bills.

“These are very expensive institutions that have to spend a lot of energy and other things to do their work,” he said. “Miners are constantly selling the bitcoins they get just to cover the cost. When it gets halved, there are no two ways about it: Miners are selling half the bitcoins.” are.”

“They are the most regular sellers,” he added. “Some hedge funds may sell their positions … but miners are selling the expected amount every day, every week, every month – and that pressure is halved.”

Reducing returns by half

Bitcoin has always shot to the moon in the months following its halving – which is what makes it such a celebrated day among enthusiasts. However, whenever the bitcoin mining reward and supply has shrunk, recover from the half-day to the cycle top.

“Guessing the end game of Bitcoin after each halving is the ultimate game,” Trenchief said. “What we do know is that every bull run since the halving has seen diminishing returns. … Even a modest 2x Bitcoin would put around $130,000 – not to be sniffed at.” “

Labka said the trend could reverse this year, although it would be the result of new demand shocks rather than a planned supply shock. According to CryptoQuant, demand for cryptocurrency is higher than ever, thanks to the influx of Bitcoin exchange-traded funds.

Statistics show that historically, the “whale” demand for Bitcoin has driven rising prices after each halving. This year, however, demand for the wheel (which includes OG bitcoiners, new investors and bitcoin ETF holders) is already at an all-time high, and the block reward has yet to be reduced.

“The once-significant impact of bitcoin halvings on prices has diminished, as the new issuance of bitcoins becomes smaller than the total amount of bitcoins available for sale,” said Julio, head of research at CryptoQuant. Moreno said. “Conversely … Bitcoin demand growth seems to be the key driver of higher prices after the halving.”