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The Bitcoin halving has arrived: what it means for…
With the price of bitcoin hitting a record high this year, the latest halving has been closely followed by investors.
The long-awaited bitcoin halving, an event that occurs approximately every four years, has now occurred. This will be the fourth in the history of bitcoin and means that the reward of miners, following the approval of new blocks added to the blockchain, will be reduced by half. This will reduce the frequency of new BTC entering the system, as the total amount of bitcoin mined approaches the maximum threshold of 21 million circulating units.
The first halving took place on November 28, 2012, after the first 210,000 blocks were mined. On that occasion the reward was reduced to 25 coins for each new block. After another 210,000 blocks the reward dropped to 12.5 bitcoin on July 9, 2016, and to 6.25 on May 12, 2020. With the upcoming halving it will drop from 6.25 to 3,125 BTC. This continues until the year 2140, when after the final halving, all 21 million tokens will be in circulation.
By reducing the reward for creating new blocks on the blockchain – an expensive process that requires power-hungry computers – the incentive to produce new bitcoins is theoretically reduced. Halving, therefore, has historically triggered supply shocks which, in turn, have generated greater interest and speculation within the crypto community.
Overall, halving appears to have triggered price increases in the past. According to research conducted by tax consultancy CoinLedger, in the six months following the last two halvings, the value of BTC increased by 51% and 83% respectively. Of course, the value of bitcoin back then was far from what it is today: at the 2016 halving, one BTC was worth $650, and in 2020, $8,572.
Why this Bitcoin halving could be different
The current market dynamics in which the halving will take place are unique in the history of cryptocurrencies and prompt a reevaluation of its potential impacts, according to a study published last week by the research team of 21Shares, the first cryptocurrency ETP issuer in Europe . .
The researchers said the effect of the four-year halving gradually diminished over time, with each subsequent event leading to a decrease in bitcoin’s value growth rates. For example, BTC increased by approximately 5,500% in the four years following the first halving, approximately 1,250% in the cycle following the second halving, and approximately 700% in the current cycle.
And this year bitcoin hit an all-time high, while during previous halvings it traded 40% to 50% below previous highs.
A wild card in the current cycle has been the launch of cryptocurrency exchange-traded products in the United States. “BTC spot ETFs have demonstrated stunning trading volumes, signaling significant interest from mainstream investors by reaching a new all-time high of over $1 billion in single-day inflows on March 13, 2024,” 21Shares said.
Read more: Can I buy a Bitcoin ETF in the UK?
Finally, the authors of the study argue that the entry of institutional players is changing the general “habits” of bitcoin investors, with long-term bitcoin holders becoming increasingly important and the amount of bitcoin held on exchanges at lows of five years.
“Should this trend persist, the supply of bitcoin would become increasingly illiquid, setting the stage for a supply squeeze and potentially a sharp rise in price as a result,” analysts say.
It’s no surprise that 21Shares is setting an optimistic tone for bitcoin. What seems certain, however, is that the current supply and demand dynamics are very different from those of the past.
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