The fourth Bitcoin halving event is expected to occur on or around April 19, 2024, heralding a major change in the cryptocurrency landscape.
The crux of the quadrennial halving event is that it involves a reduction in the reward (block subsidy) given to miners for each block mined on the Bitcoin blockchain, as defined by the protocol.
Halvings are scheduled to occur approximately every four years, or every 210,000 blocks, until the entire supply of 21 million Bitcoins has been mined by approximately 2140.
As part of Bitcoin's deflationary approach to supply caps, the upcoming halving will reduce the Bitcoin supply subsidy from 6.25 BTC to 3.125 BTC per block, encouraging tighter supply conditions.
read more: The history of Bitcoin halvings — and why this one is different
As long as we gradually reduce the number of Bitcoins in circulation and Bitcoin adoption increases over time, the halving mechanism ensures that the laws of supply and demand consistently affect the value of the asset.
Impact on price trends
Historically, each halving event has been accompanied by a significant spike in the price of Bitcoin in the months leading up to and following the event.
- Specifically, when the reward was reduced from 50 BTC to 25 BTC, the price of Bitcoin increased by 8,447% in the 365 calendar days following the halving on November 28, 2012.
- The year after the halving on July 9, 2016, Bitcoin prices saw a more modest but still impressive 283% increase, reducing the block reward to 12.5 BTC.
- In the 12 months since the May 11, 2020 halving (when the reward was lowered to 6.25 BTC per block), Bitcoin price has increased by 527%.
The bull market before the halving has been tapering off over time, likely due to miners selling their Bitcoin holdings to secure profits ahead of the impending reward cut.
read more: Bitcoin miner consolidation seems imminent as halving approaches
Nevertheless, historical patterns suggest that Bitcoin could reach all-time highs in the aftermath of the 2024 halving.
Impact of Bitcoin Spot ETF
The Bitcoin landscape has evolved significantly, particularly with the approval of Spot Bitcoin ETFs and the influx of institutional capital into the market.
These ETFs are generating significant daily demand, outpacing Bitcoin's new supply even before the halving, and could absorb a significant portion of the limited new issuance.
To put Spot Bitcoin ETF inflows into perspective, at the current block reward rate, the Bitcoin network produces about 900 new coins per day, or about $54 million worth of Bitcoin (per coin). (Assuming an average price of $60,000).
In April 2024, the number of coins in circulation will drop to 450 coins, or about $27 million worth of Bitcoin.
Net inflows into US-listed spot Bitcoin ETFs averaged $208 million a day during February, far outpacing the pace of new supply even before the halving.
read more: Bitcoin ETF Snapshot: Weekly net inflows in the segment hit a record $2.5 billion
This imbalance between new demand and limited new issuance is likely contributing to strong upward pressure on prices.
Evolution of large-scale liquidity derivatives markets
The emergence of robust, regulated derivatives markets marks a fundamental shift in the narrative around halving for three main reasons: It allows price risks to be hedged, making Bitcoin demand risk easier to manage and providing market participants with actionable price discovery. .
Miners typically sold their Bitcoins to pay for their operating costs when mining Bitcoins. This continued sale resulted in a measured increase in prices. After a halving event, miners will have fewer Bitcoins available to sell, potentially causing the price to rise.
Mining is currently dominated by larger, often publicly traded companies, and a highly liquid, regulated derivatives market allows these companies to leverage future Bitcoin prices to cover their costs without selling their coins. It is possible to hedge and fix.
If this is true, selling pressure from miners is less likely to weigh on Bitcoin prices in the future.
More investors and traders means more liquidity for Bitcoin and more price stability. It's worth noting that Bitcoin's volatility has decreased in recent years, with fewer extreme movements both up and down.
Impact on miners
The impending halving poses challenges and opportunities for miners, as evidenced by changes in miner behavior and industry trends.
The decline in Bitcoin reserves held by miners, coupled with increased competition and record high hash rates, highlights the need for operational efficiency and strategic adaptation.
The number of Bitcoins held in wallets associated with miners has fallen to its lowest level since July 2021, with miners likely taking advantage of Bitcoin's recent price spike ahead of the halving. This suggests that they are using it to deplete their stocks or to raise funds for machinery and mining upgrades. Facility.
In previous cycles, there weren't many large-scale miners, and even fewer listed. This halving could spur merger and acquisition activity among mining companies, increase industry consolidation, and foster innovation in sustainable mining practices.
Rise of the Ordinal
The recent surge in retail demand can be attributed in part to the rise of Bitcoin Ordinals BRC-20 tokens, which are reshaping the world of cryptocurrencies.
These tokens, often likened to “Bitcoin NFTs,” drive on-chain activity and can increase transaction fees, thereby reducing miners’ post-halving block rewards. strengthen their income sources.
long term outlook
Bitcoin's being called “digital gold” emphasizes its role as a store of value, especially as scarcity increases due to the halving event.
Institutional investors who see Bitcoin as a hedge against inflation may support a halving in Bitcoin's perceived value.
Changes in central bank policy, such as a prolonged rise in interest rates or the possibility of quantitative easing, could make Bitcoin even more attractive as a hedge against currency devaluation.
Please see the Opinions section for more information. Stop worrying too much about the next Bitcoin halving
Looking to the future, the implications of Bitcoin's programmed scarcity intersecting with evolving demand dynamics remain interesting. While there have been cycles and associated price increases in the past that have yielded valuable insights, the 2024 halving represents a unique confluence of factors that could usher in a new era for Bitcoin. It has become a thing.
With 28 more halving events expected over the next 112 years, the future trajectory of Bitcoin adoption and network growth will need to be closely monitored. Particularly when widespread access to Bitcoin in the US was just made possible less than 90 days ago with the approval of the Spot Bitcoin ETF. .
Maintaining a balanced perspective is essential to navigating the evolving Bitcoin landscape, as institutional investors and retail interests combine with regulatory developments and macroeconomic changes.
Payal Shah is Director of Equity and Cryptocurrency Research and Product Development at CME Group. She is responsible for leading the development of new and innovative products across the cryptocurrency, equity and alternative investment markets. This includes a comprehensive suite of futures and options contracts for major benchmark indices such as the S&P 500 and her NASDAQ-100, as well as international access through regional indices. Since joining the company in 2016, Ms. Shah has been deeply involved in the cryptocurrency space and has led CME Group's more than 50 projects, including Bitcoin and Ether futures and options contracts, micro-contract suites, and event-driven markets. We have helped create a cryptocurrency reference rate. She serves on her CME CF Cryptocurrency Oversight Committee. Prior to joining CME Group, Ms. Shah was an ETF specialist at MSCI and held trading roles in Morgan Stanley's Equity Derivatives Group.
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