Bitcoin Halving is a rule hard-coded into the Bitcoin Core software that automatically reduces daily mining rewards by 50% every 210,000 blocks mined (roughly 4 years).
Mining is important to Bitcoin because it is a process that validates Bitcoin transactions and ensures the security of the Bitcoin Blockchain network.
This year, starting with block #840,000, the block subsidy (aka Coinbase reward) for the miner who successfully mines a block will be rewarded 3.125 BTC, half of what they usually earn (6.25 BTC) for each block mined every ~10 minutes.
~450 newly mined BTC will be added, creating ~13,500 new Bitcoins per month and ~164,250 Bitcoins added to the total Bitcoin supply each year for the next 4 years until the next halving. This fixed schedule continues until 2140 in order to predetermine a fixed inflation schedule for the asset.
The History of Bitcoin Halving
Every 4 years, an epoch (cycle) ends and the reward given to miners for validating transactions that keep the network secure is halved. A quick look at previous halving epochs can indicate what might happen in terms of price action:
2012, the time of halving (28/11/2012)
- Price on halving day: $12.35
- New BTC per block (pre-halving): 50 BTC per block
- New BTC per block (after halving): 25 BTC per block
- Price 150 days after halving: $127.00
- Change between the next halving: INCREASE 52x
2016, the time of halving (09/07/2016)
- Price on halving day: $650.63
- New BTC per block (pre-halving): 25 BTC per block
- New BTC per block (after halving): 12.5 BTC per block
- Price 150 days after halving: $758.81
- Change between the next halving: 13.5x INCREASE
Halving 2020 (11/05/2020)
- Price on Halving Day: $8,821.42
- New BTC per block (pre-halving): 12.5 BTC per block
- New BTC per block (after halving): 6.25 BTC per block
- Price 150 days later: $10,943.00
- Change between the next halving: 8x INCREASE (estimated at $72,000/BTC)
Bitcoin’s price is a series of higher highs and higher lows than in previous 4-year cycles. No other asset has the same reliable scarcity as Bitcoin.
“But this time it’s different!”
We have been hearing this for years. Each previous cycle was described, at the time, as being different. Looking at historical data, it is actually the same thing. Highs, lows, accumulation, capitulation, and then reaccumulation. Replace the unique black swan events of each 4-year cycle and you still end up with pretty much the same predictable price action.
Over the last three 4-year cycles, Bitcoin has been relatively predictable.
- Year 1 (3 months): Lateral Pricing
- Year 1-2: Bull Market
- Year 3: The Bear
- Year 4: Recovery before the next Bull + liquidation before the halving
The Bitcoin market has grown over the years from a small number of market participants with limited capital to support mines selling their Bitcoin reserves to cover costs.
This time it’s different. Wall Street has never been there to absorb supply losses.
The ETFs hold about 180,000 Bitcoins in their reserves (US$55 billion) and trade ~4 billion dollars per day and swallowing up around 200 million dollars the average daily supply in the weeks leading up to the halving, putting upward pressure on the price.
To put this into perspective, only 55,000 new BTC have been produced by miners since the ETFs launched in January 2024. ETFs have absorbed 3x the amount of BTC mined and the amount of newly produced Bitcoin will be cut in half thanks to the upcoming halving in April 2024.
When the amount of BTC produced decreases by 50%, ETFs may be forced to increase the price of $BTC to encourage liquidity from long-term holders (LTH).
Bitcoin’s Fixed Supply Cap
Bitcoin is the only asset in history with a fixed supply. A cap of 21,000,000 Bitcoins is the absolute limit of production.
Bitcoin is not elastic. Consider another commodity with a limited supply: GOLD. When the price of gold increases, more companies start mining gold to meet demand. They can deploy methods that are traditionally unprofitable when demand increases. Once the price normalizes, these methods are stopped and remain dormant until the next market rally.
There is theoretically an unlimited supply of gold to be mined.
As a long-term store of value, gold’s relative scarcity is a riskier value proposition compared to Bitcoin’s absolute, immutable scarcity.
A balance between supply, demand and price is normal for gold and other “goods”. Bitcoin is different.
Bitcoin has no supply uncertainty. It only has demand and price due to the supply halving. Miners cannot simply produce more supply to stabilize prices like in the oil and gold markets.
Over time, the Veblen effect could take over due to the desirability of a healthy price increase when Bitcoin reaches parity with gold. A parity of around $500,000 per Bitcoin would surely elevate the crypto asset’s status as the “new gold.”
Bitcoin is still considered the best currency ever invented. Remember, all currency is invented and only fiat currency (USD) is a currency imposed by government decree. Here is how Bitcoin compares to other currencies:
Bitcoin Halving Indicators to Watch
The approval of the 2024 spot ETF has created a more balanced market that should limit downside volatility over time and eventually lead the charge towards a parabolic price increase.
ETFs are expected to continue to see increased inflows as new authorized participants order Bitcoin. On April 4, 2024, BlackRock added Goldman Sachs, Citigroup, UBS, Citadel Securities, and ABN AMRO to its list of APs that can place buy and sell orders for Bitcoin.
Bullish? We think so. It’s hard to imagine a case where it wouldn’t be with the simplistic view that increased demand (ETFs) + reduced supply (halving) = higher prices.
There are several themes and indicators to watch after the halving:
- Long-term holders are making gains.
- Active vs. Inactive Supply: When coins move from inactive wallets to exchanges, there is considerable anticipation of a sale. The older the coin being sold, the stronger the signal of a market top or bottom. You can look at HODL waves, coin burn days, and exchange inflow/outflow volume metrics.
- Mining equipment or alternative energy improvements.
- Imagine you’re a miner. After the halving, your costs remain constant, but your payment for verifying transactions is cut in half. Inefficient miners may need to sell bitcoins held in reserve to cover immediate costs, unless the price increases in the medium to long term. (Coinbase report)
- Short-term activity: Short-term transactions by holders signal an increase in interest in transactions from a macro perspective, creating momentum or consolidation. Indicators to watch: RHODL and short/long SOPR.
- Imagine you’re a miner. After the halving, your costs remain constant, but your payment for verifying transactions is cut in half. Inefficient miners may need to sell bitcoins held in reserve to cover immediate costs, unless the price increases in the medium to long term. (Coinbase report)
- The “ripple effect” of media coverage and hype attracts new entrants to the market.
- As pressure mounts on the Fed to lower interest rates by about 5%, investors (speculators) may reallocate funds from Treasury bonds to more profitable investments with higher upside potential when interest rates begin to fall.
- Increased regulation, global adoption, FOMO and institutional interest will also be factors we will pay attention to.
The Bitcoin halving is a highly publicized anti-inflationary move by the greatest currency ever invented. If history repeats itself, we are entering a bull market for the next 12-24 months.
This is another step towards Bitcoin’s role in the future of money.
Adoption will continue to increase while those of us who dollar-cost average ignore the ups and downs, knowing that we are still a cycle or two away from the rest of the world realizing that the current financial system is designed to fail before a global redistribution of wealth.
