Bitcoin (BTC) is halfway to its next halving, and analysts are predicting how the price will react this time. However, market reactions to Bitcoin halvings have been difficult to forecast in the past, and the results usually take weeks to manifest.
The next Bitcoin halving, which occurs every four years and involves a 50% reduction in block rewards granted to network miners, is scheduled for March 30, 2024. The reward will be decreased in half at that moment, from BTC 6.25 to BTC 3.125 each block mined.
BTC 900 (USD 27 million) is now being generated every day. That number will drop to BTC 450 after the second halving.
Bitcoin’s block reward was reduced from BTC 12.5 to BTC 6.25 during the previous Bitcoin halving on May 11, 2020. However, in terms of pricing, the initial response to the incident was possibly less significant than some had anticipated (and probably hoped for). BTC finished the day marginally down, but some analysts believe the halving was one of the catalysts for a strong bull run that began just over two months later.
BTC reached highs of over USD 60,000 during the run, which continued until April the following year. A huge correction halved BTC’s price in around 100 days at that moment, paving the way for the second leg of the bull market, which drove BTC to an all-time high of around USD 69,000 in November 2021.
Nonetheless, the market’s reaction to the second halving remains unknown. What we do know is that miner rewards will be half, implying that the price would have to rise in order for mining to stay lucrative.
It would make sense for prices to rise, given the widely held belief that the cost of producing new bitcoin works as a rough bottom for the price — an idea that even Bitcoin creator Satoshi Nakamoto has written about. Also, the question of whether Bitcoin usage will grow to the point where transaction costs will outnumber block rewards remains unanswered.
Immediate price changes are uncommon.
Looking back on prior halvings, it’s evident that there was almost never an instantaneous price reaction to the halves event. This is hardly surprising, considering that this is a well-known event that the market should have priced in.
What can be observed, however, is that prices on all three previous occasions increased dramatically after the halving.
Predictions before the previous halving ranged from no price impact to a sell-off prompted by miners dumping coins and traders adopting the ‘buy the rumor, sell the news’ strategy, as well as upward price pressure as fewer new coins enter circulation.
However, once the event had occurred, the reality turned out to be very similar to the first prediction, with little impact on the price at first.
Going back to the second Bitcoin halving in 2016, the price first dropped, much to the astonishment of many holders who had expected the event to enhance the price. However, as with the previous halving, the bitcoin price began to rise again, propelling BTC into a tremendous bull market that lasted until the end of 2017.
Independent cryptography consultant Richelle Ross, who anticipated a price surge in December 2015, when BTC was worth roughly USD 400, forecasted that BTC would touch USD 650 after the halving the following year.
The prediction came true, albeit on the conservative side, with BTC approaching USD 1,000 before the end of the year.
In 2012, the first Bitcoin halving took place. The community was broadly split into two camps at the time, according to Ethereum (ETH) founder Vitalik Buterin, who was then a reporter for Bitcoin Magazine. Those in the first side believed that the halving would generate a “supply shock” that would push the price up by as much as 2x, while those in the second camp maintained that the halving would be a “known occurrence” for the market that would have no effect on the price.
Looking back now, we can see that what actually transpired was basically a synthesis of both groups’ viewpoints – and that this looks to have been the case for both halvings subsequently.
Yes, the halving is – and always has been – a known event, and so the immediate price impact has been minimal. However, in the past, the smaller supply of new coins entering the market, combined with the reality that miners, all other things being equal, will need a higher price to make a profit, has resulted in higher prices in the medium to long term on all three instances.
So, while we don’t know what will happen after the next halving, which is scheduled for the first half of 2024, we can presumably expect more of the same – and that the event may start another bitcoin market cycle.