As the fourth bitcoin halving approaches in just a few weeks, cryptocurrency investors are turning to past halving events to gauge their potential impact on the price.
Every four years, the pace at which new bitcoins enter circulation is halved. This is a deliberate measure to curb inflationary pressures that could arise from rapidly releasing the total capped supply of 21 million bitcoins. The final bitcoin is projected to be mined around the year 2140.
For the miners who validate transactions on the blockchain, this halving event will see their bitcoin reward cut in half from 6.25 to 3.125 bitcoins per block. Less new bitcoin means less supply.
Christo de Wit, Luno’s South Africa country manager, elucidates, “The halving is an inherent feature of the bitcoin network’s algorithm, serving as a deflationary measure occurring approximately every four years. There are no certainties, and the post-April halving price trajectory remains speculative, whether it will decline, ascend, or stabilize.”
The third Bitcoin halving unfolded in May 2020, preceding notable price surges in previous instances. However, the recent surge in Bitcoin’s value to a fresh all-time high suggests a departure from past cycles, potentially fueled by the surge in institutional interest following the approval of Bitcoin ETFs in the US.
“This cycle exhibits distinct characteristics compared to its predecessors, with Bitcoin nearing all-time highs around the halving for the first time,” de Wit remarks.
Moreover, many analysts posit that the halving has exerted minimal influence on Bitcoin’s historical price surges. “Even if one subscribes to the notion that the halving drives price movements, there’s no guarantee this will persist in the future,” he adds.
Market conditions
In the months leading up to the halving, significant milestones have been reached, including the approval of the inaugural spot bitcoin exchange-traded funds (ETFs) in the United States, accompanied by substantial inflows totaling over $12 billion into these funds. March witnessed a milestone for Bitcoin with a new all-time-high price surpassing R1.37 million on Luno. Additionally, recent reports indicate outflows of approximately $83 million from these ETFs, adding another layer of consideration ahead of the halving.
Bitcoin remains a relatively nascent technology and financial asset. With the influx of institutional investments and the introduction of ETFs, the landscape of the industry today differs markedly from that of five or ten years ago. As such, the current cycle exhibits unique characteristics, distinguishing it from previous cycles.
When the first halving took place in 2012, bitcoin was priced at just over $12.
After the first halving, the price of bitcoin shot up from $12 to around $1,000 by the end of 2023. The second halving event happened on 9 July 2016 when bitcoin was valued at around $640. By July 2017, it had risen to $2,550.
The third and most recent halving took place on 11 May 2020, when Bitcoin traded for about $8,750. Within a year, Bitcoin reached approximately $62,000.
What the halving means to bitcoin holders
Apart from price fluctuations, the halving does not affect the amount and nature of bitcoin you own. The only impact is the rewards miners will receive.
At the time of the first halving in 2012, there were only 43,000 bitcoin addresses. By the second halving in 2016, there were around seven million and today there are more than 46 million bitcoin addresses with more than $1 in them.
Overall supply
The overall supply of bitcoin will not drop due to the halving. The total supply is always rising and will continue to do so until it hits the cap of 21 million around 2140. The halving simply puts the brakes on the release of new bitcoins by cutting miners’ rewards – it’s like a measure to keep things in check and avoid flooding the market.
