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What will be different this time with the Bitcoin halving?
Bitcoin prices usually increase for several months after a halving event. This time, however, the market expects the halving to be different.
ANNOUNCEMENT
Bitcoin’s fourth halving event is almost upon us, and if history is any indicator, the cryptocurrency will likely see a post-halving surge.
The Bitcoin halving is an event that occurs approximately every four years, which sees the number of bitcoins released decrease by 50% as mining rewards decrease by 50%. Currently the Bitcoin reward is 6.25 BTC. However, after the fourth halving, the reward will drop to 3,125 BTC.
As a result, the amount of Bitcoin in circulation becomes even scarcer, causing a surge in demand among investors. This is mainly due to the fact that Bitcoin has a limited supply, with only a maximum of 21 million coins in circulation forever.
So far, there have been three Bitcoin halvings, with the next one expected around April 19 or 20. The last Bitcoin halving occurred on May 11, 2020, the previous ones on July 9, 2016 and November 28, 2012.
These halvings are pre-programmed into the Bitcoin blockchain software and usually occur once every 210,000 blocks mined. Due to the uncertainty of how long it will take to mine the next 210,000 blocks, after the previous Bitcoin halving, it is very difficult to predict the exact date of the next halving.
However, a rough estimate can be made based on the average time it takes to mine a block. Currently, it takes an average of 10 minutes to mine a Bitcoin block, with 834,327 blocks already mined as of April 17.
A Bitfinex report published on April 15 suggests that investors may be buying more bitcoin now in anticipation of the cryptocurrency’s value rising in the coming months.
“As Bitcoin’s halving, scheduled for Saturday, April 20, approaches, the amount of BTC exiting exchanges reached its highest level since January 2023 last week. At the same time, supply that has been dormant for more than a year , meaning the total number of BTC that has not moved for over 365 days has plummeted. This implies that the market is at a major inflection point.
“On Friday, April 12, the net amount of BTC leaving centralized exchanges (CEX) was 6,767 BTC, which was the highest daily outflow since January 2023. This par value trend suggests investors are stocking up on BTC and they are moving their holdings to cold storage in anticipation of potential price increases post-halving, a period in which the reward for mining Bitcoin is halved, thus reducing the supply of new BTC entering the market.
“The current actions of Bitcoin holders mirror those observed in December 2020, shortly before a significant surge in the Bitcoin market. This pattern suggests that we may be entering a similar growth phase.
“Over the past month, we have seen long-term holding (LTH) investors holding their BTC for more than 155 days, actively selling their coins at a rate of approximately 16,800 BTC per day.”
Will Bitcoin also rise after the 2024 halving?
Typically, Bitcoin prices continue to rise for a few months after a halving month, increasing, on average, for seven months. However, this rally is also seen as a warning sign for what is inevitably a market crash or recession, due to a number of investors, especially long-term ones, selling their Bitcoin holdings and cashing in on the gains. post-halving.
On the other hand, analysts expect that Bitcoin’s price movements will be slightly different after the upcoming halving, as Bitcoin has already seen notable surges and even new record highs before the halving itself. Therefore, the entire price cycle that usually surrounds this event appears to have become much more compressed.
Brett Hillis, partner at Reed Smith, said in an email note: “The halving of this cycle is unique. Historically, halving has led to a significant increase in prices, but this time Bitcoin is already not far from record levels.
“It is difficult to say whether this could limit the price increase, but we could be in for some price volatility. Under such circumstances, we could see a significant growth in disputes within the crypto ecosystem.
“The SEC approval of spot Bitcoin ETFs boosted the market in January, and the recent approval of ETFs in Hong Kong pushed values further higher. Regulatory approvals for Bitcoin-based investment products they allow for regulated retail investment in the asset class, which can dampen the volatility we tend to witness.
“While ETF approvals in the US and Hong Kong allow regulated retail investment in the asset class using that structure, EU markets have had to take a different route. EU companies are restricted by the UCITS regime, which limits ETF investments to various traditional investment types, meaning a Bitcoin ETF is not possible under the current regulatory regime.
“The absence of a regulatory regime allowing Bitcoin ETFs has led the EU market in a different direction, namely the listing of various digital assets traded on exchanges.”
Because prices may not increase this time
Another key reason why this Bitcoin halving may not result in as large a price increase as the last halving in 2020 is due to the fact that the US Federal Reserve had a significantly loose monetary policy at the time. This meant that interest rates at the time were relatively low.
However, in recent months, the situation has changed significantly, with the US Federal Reserve raising interest rates to combat persistent inflation. Higher interest rates have led to greater interest in things like U.S. Treasury securities and other interest-paying assets and investments.
In turn, this has also led people to abandon riskier assets such as Bitcoin and other cryptocurrencies. Although there are more and more signs that the US Fed will cut rates in the coming months, it is not yet clear when exactly this will happen.
Therefore, investors may still be cautious about investing as much in Bitcoin before rates are cut. Another major factor behind this hesitancy is that the cost of living is still rising in several parts of the world, leaving a number of investors struggling to afford basic necessities and mortgages, significantly eroding disposable income.
In this case, when consumers invest, in addition to interest-bearing assets, they can also turn to hedges against inflation such as gold and other precious metals.
While Bitcoin is by far the most recognized cryptocurrency, it is also one of the most expensive to invest in, due to its growing popularity, which could pose another obstacle for new investors in securing a piece of the pie.
Bitcoin has also seen increased competition from other cryptocurrencies such as Ethereum, Tether, XRP, and Binance Coin, to name a few. Not only can they be much cheaper to invest in, but they also sometimes boast better features than Bitcoin, such as greater privacy, better smart contract functionality, and faster transaction times.