This bitcoin halving is different from others. Here’s what to know

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Just a few years ago, the bitcoin halving was celebrated only by early cryptocurrency enthusiasts, who swore by it as an essential feature of a revolutionary, anti-establishment deflationary asset.

NOW, bitcoin has been adopted by Wall Street’s largest institutions and continues to attract curious retail investors with each cycle. From the gleeful to the perplexed to the unimpressed, crypto market watchers know that this halving is coming and that it must mean something good for Bitcoin.

This is a technical event that takes place on the Bitcoin network approximately every four years, cutting the cryptocurrency’s supply in half to create a scarcity effect that makes it closer to “digital gold.” Historically, this sets the stage for a new cycle and a new uptrend – but this one is a little different.

“Halving is the ultimate geek event for bitcoiners, but the 2024 iteration goes even further, as reduced supply combined with new demand for ETFs creates an explosive cocktail,” said Antoni Trenchev, co -founder of the crypto exchange Nexo. “What makes this halving unique is that Bitcoin has already surpassed the high of the last cycle – something it never did before the quadrennial event – ​​making the prediction of the duration and the ferocity of this much more delicate cycle.”

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Bitcoin (BTC), enters its fourth halving period next week.

After the 2012, 2016, and 2020 halvings, the price of bitcoin increased approximately 93x, 30x, and 8x, respectively, from its daily halving price to its cycle high. Past performance is no guarantee of future returns, and some even warn that, in the face of lower supply every four years, the days of such a large impact on the price of bitcoin are likely already behind us.

However, Steven Lubka, head of private clients and family offices at Swan Bitcoin, said that “if there was ever a time to be a little more optimistic” about returns after owning it, it’s this year.

“This Bitcoin bull cycle – which started earlier due to the January approval of spot ETFs – may well be shorter and more explosive, culminating with a peak in late 2024 or early 2025,” Trenchev added.

Whether you’re looking to better understand Bitcoin as a new deflationary asset, or simply want to speculate on the price of Bitcoin in the coming weeks, here’s what you need to know about the halving and its potential impact on the market .

What is happening?

Halving occurs when incentives for Bitcoin miners are cut in half, as required by the Bitcoin blockchain code. It is scheduled to occur every 210,000 blocks, or approximately four years.

As a reminder, miners operate the machines that do the work (essentially solving a very complex mathematical problem) of recording new blocks of Bitcoin transactions and adding them to the global ledger, also known as the blockchain.

Miners have two incentives to mine: transaction fees that are paid voluntarily by senders (for faster settlement) and mining rewards – 6.25 newly created bitcoins, or about $437,500 as of Thursday morning. Between April 18 and 21, mining rewards will be reduced to 3,125 bitcoins. The incentive was initially 50 bitcoins, but this was reduced to 6.25 in 2020.

Reducing block rewards causes a reduction in the supply of bitcoin by slowing the rate at which new coins are created, helping to maintain the idea of ​​bitcoin as digital gold – the limited supply of which helps determine its value. Ultimately, the number of bitcoins in circulation will peak at 21 million, according to the Bitcoin code.

Impact on the market, now and later

Halving is not like an on-off switch that is flipped at a specific time. Indeed, it is reasonable to think that the days will pass without the market moving. Of course, there could certainly be volatility caused by speculators who might trade on the event. Swan’s Lubka cautioned that investors should not confuse this with ongoing technical change.

“I don’t think we’re seeing a big move one way or the other, but even if there was a big move, it wouldn’t have anything to do mechanically with the halving,” he said. -he declares. However, “in the months that follow, approximately $30 million less worth of bitcoins will be sold each day. This can add up quickly and impact this period.”

This $30 million assumes a Bitcoin price of around $70,000.

The only important thing investors need to understand about the halving and its potential impact on the market, Lubka said, is that miners sell a large portion of the bitcoins they receive to pay their daily bills.

“These are very expensive businesses that have to use a lot of energy and other things to do their job,” he said. “Miners are constantly selling the bitcoin they mine just to cover costs. When that amount is cut in half, there’s no two ways about it: miners sell half as many bitcoins.”

“They are the most consistent sellers,” he added. “Some hedge funds might sell their positions… but mining companies sell every day, every week, every month in predictable quantities – and that pressure is cut in half.”

Diminishing returns from half to half

Bitcoin has consistently landed on the moon in the months following its halving – which is what makes it such a celebrated day among enthusiasts. However, every time the mining reward and supply of Bitcoin declined, so did the returns on the halving day at the top of the cycle.

“Guessing the endgame for Bitcoin after each halving is the ultimate sport,” Trenchev said. “What we do know is that each rise after the halving has seen diminishing returns. … Even a measly 2x will put bitcoin around $130,000 – not to be sniffed at.”

This trend could reverse this year, Lubka said, although this would not be the result of the expected supply shock but rather the new demand shock. Thanks to the advent of Bitcoin exchange-traded funds, demand for the cryptocurrency is greater than ever, according to CryptoQuant.

Data shows that historically, “whale” demand for Bitcoin increases after each halving, driving prices higher. This year, however, demand from whales (which includes OG bitcoiners, new investors, and bitcoin ETF holders) has already reached an all-time high, and the block reward hasn’t even been reduced yet.

“The once significant influence of the bitcoin halving on prices has diminished, as new bitcoin issuances decrease relative to the total amount of bitcoin available for sale,” said Julio Moreno, head of the research at CryptoQuant. “In contrast… growth in demand for Bitcoin appears to be the main driver of the price rise after the halving.”

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