With the Bitcoin halving event just around the corner, many have expressed skepticism about the trajectory of Bitcoin’s price after the halving. While the specifics of the halving event are not set in stone at this point, researchers and analysts were quick to point out that this halving event already differs from previous halvings. Some market parameters also point towards a different price trajectory following the event.
Need a Refresher?
Bitcoin halving is a quadrennial event when the mining rewards of each block are split in half. It occurs after 210,000 blocks have been mined, and the rewards have historically been halved 3 times thus far. The first reward was 50 bitcoin per block, which was then halved:
- on Nov. 28, 2012, to 25 bitcoins
- on July 9, 2016, to 12.5 bitcoins
- on May 11, 2020, to 6.25 bitcoins
- In April 2024, the rewards will be halved to 3.125 bitcoins
Put simply, since Bitcoin has a fixed supply of only 21 million, the halving event is designed to counteract inflation and slow down the rate of Bitcoin mining so that the entire supply is not extracted in a short amount of time. According to estimates, with the current rate of mining and halving, the entire Bitcoin supply is expected to be mined somewhere around the year 2140.
So, What’s Different This Time Around?
Well, the first thing that is notably different from previous halving events is the fact that the price of Bitcoin has gone up drastically before the event. Presumably, this occurred because traders and miners are already anticipating a price increase following the halving event. This time around however, there is an ongoing discussion about Bitcoin actually being “priced in” as is.
In short, the traders who believe Bitcoin is “priced in” adhere to the Efficient Market Theory, which basically means that when an event is known in advance, everyone shares the same information, resulting in a fairly valued asset (in this case, Bitcoin).
On the other hand, there’s another camp of traders who believe that the historical motif of Bitcoin and the entire crypto market will repeat itself. This so-called boom-bust cycle occurs when a price cyclically goes through rapid increases followed by rapid decreases.
However, this debate goes much deeper than just 2 sides of the same coin arguing over which side is shinier. For one, with the introduction of Spot Bitcoin ETFs, the institutionalization of Bitcoin has become an increasingly relevant characteristic of the famous digital currency. Unlike previously existing Bitcoin Futures ETFs, Spot Bitcoin ETFs invest directly in bitcoins as opposed to derivative contracts based on the price of Bitcoin.
More importantly, as JPMorgan and Goldman Sachs analysts have pointed out, the macroeconomic factors surrounding this halving event are drastically different than 12, 8, or even 4 years ago. In line with that, high interest rates coupled with a high rate of inflation result in riskier investments being less and less attractive for the average investor.
As for the mining conditions, they might not change as much as was initially expected. Some experts, like Colin Harper of the Hashrate Index, believe that this year’s halving event will have substantially less significant effects on mining efficiency compared to previous years. As a result, Colin states that: “Mining margins won't be as good after the halving as they are now, obviously, but they won't be horrendous.”
What Is The Take-Away?
Initially, it was believed that the price of Bitcoin would follow its usual post-halving trend and start rising on an upward trajectory after some initial market volatility. However, numerous outside factors weigh into the price of Bitcoin, especially current macroeconomic elements and the recent institutionalization of Bitcoin. That is why this specific halving cycle might not end up as most traders expect it to.
Therefore, in closing, it is important that you take all of these factors into consideration when creating a Bitcoin investment strategy around the time of this halving cycle. Just this past week, Bitcoin proved just how volatile and susceptible to macroeconomic influence it can be. So, tread carefully and always do your due diligence before making notable investments.
