What to expect from the 2024 BTC halving?
Written by Maxim Shkolnikov
Bitcoin halvings have been a part of the Bitcoin network since its inception. They are the reason why Bitcoin has a limited supply of only 21,000,000 BTC and have been implemented into the code right from the start by Satoshi Nakamoto. This mechanism serves to control the supply of Bitcoin and maintain its scarcity over time. As a result, the halving event is considered a crucial factor in Bitcoin’s monetary policy, as it clearly affects the S2F model and it’s expected to play a significant role in the cryptocurrency’s value and price over time. Many believe that halvings are the reason behind the cycles that the crypto market tends to experience.
What is a BTC halving?
A Bitcoin halving occurs when the number of Bitcoin that miners receive for verifying transactions is reduced by half. This reduction in the reward serves as an economic incentive for miners to continue to validate transactions and secure the network. The halving is predetermined and happens after every 210,000 blocks have been mined and occurs roughly every 4 years as the average time that it takes to mine a block remains constant at about 10 minutes with the help of mechanisms that regulate the mining difficulty. With each halving, the reward for mining new blocks decreases, leading to a reduction in the supply of new Bitcoin that enters circulation. The first halving occurred in 2012, and the block reward was reduced from 50 BTC to 25 BTC. In 2016, the second halving event took place, and the block reward was reduced to 12.5 BTC. The third halving event occurred in May 2020, reducing the reward to 6.25 BTC. The halving mechanism is expected to 2 continue until the block reward reaches zero, at which point, no more new Bitcoin will enter circulation.
How has it affected BTC in previous cycles?
The previous halving events have had a significant impact on the price of Bitcoin. In 2012, Bitcoin was trading at $11 before the halving, and by November 2013, its price had reached a high of $1,100. The second halving event in 2016 saw Bitcoin rise from $650 to over $20,000 in 18 months, marking the beginning of a bull run that continued until 2018. In the figure below you can see the BTC price after each halving scaled to the 2020 halving.
The price patterns remain surprisingly similar throughout each cycle with the only difference that the growth itself becomes less every cycle which is explainable as the BTC market cap grows significantly larger between cycles. The reduced supply of Bitcoin that comes with each halving event, combined with an increase in demand, is considered to be the primary reason for Bitcoin’s price surge. However this cannot fully explain the massive price increase that 3 Bitcoin is experiencing every halving cycle for one simple reason: this information is available to everyone and should be already included in the price of BTC. Here is where the uniqueness of the BTC economic model comes in handy. The main driver of the supply are miners who get a reward in BTC every time a new block is discovered face the decision whether to sell the reward to cover the costs or to hold it until later. And usually they sell at least a part of their reward to cover the costs of mining the block, so simply once their rewards decrease, miners start selling less BTC and that clearly decreases the downward pressure on the price of Bitcoin. This surge in price has historically been observed in the months and years following the halving event. However, the relationship between halving events and Bitcoin’s price is not straightforward. There are many factors at play, including market sentiment, global economic conditions, regulatory developments, and technological advances, all of which can impact Bitcoin’s price trajectory.
How will it affect BTC now?
The next Bitcoin halving is expected to happen in April of 2024, and many interpret the recent BTC price increase as a beginning of the new bullish cycle prior to the halving
We are now entering the green zone showed in Figure 2 since the Bitcoin price has broken the significant neckline resistance levels at around 28k. The green zone is the least predictable price of the price movement throughout the cycles as it is closing in on the halving and many things start to affect the price. It is very important to consider the costs of mining because it can affect the price of Bitcoin in two completely different ways: (1) if the difficulty price (shown in figure 3) is higher than the actual BTC price that it only puts more pressure on the miners to sell as they know that rewards will soon be cut in half and the price begins to decrease, (2) but if the difficulty price is lower than the miners have the incentives are willing to hold a bigger portion of Bitcoin to wait for the price increase and that starts the price increase before the actual halving.
Many experts believe that the halving event will continue to impact Bitcoin’s price in the long term. Some predict that Bitcoin’s price could reach 50,000$ before next halving and $100,000 or even $1,000,000 in the coming years. However, others believe that the impact of the halving will be less significant than in previous cycles, as the event has become more predictable, and its effects may have already been priced in by the market. One potential factor that could impact Bitcoin’s price in the future is the growing institutional interest in Bitcoin. Many large companies and financial institutions are beginning to invest in Bitcoin and other cryptocurrencies, which could drive up demand and increase Bitcoin’s price. Another factor that could impact Bitcoin’s price is the development of the Lightning Network, which was also forced by the BTC halvings since miners have to look for ways to increase their profits and the way to do so is to increase the number of transactions that they can handle. That will make Bitcoin more scalable and useful for everyday transactions and further increase the demand for Bitcoin.
