The halving of bitcoin is an event that occurs every four years and sees the bitcoin reward for miners halved. This adjustment, programmed into Bitcoin's code from its inception, is considered a major event in the crypto-currency ecosystem, often associated with a price rise. We summarise the study provided by Bitwise, which examines the implications and previous cycles of halving.
Reducing the reward for bitcoin miners aims to control inflation and reinforce the scarcity of bitcoin. By reducing the supply of new bitcoins, the price is expected to appreciate over the long term, despite initial reductions in miners' earnings. Historically, the price of bitcoin has risen significantly after each halving, despite short-term fluctuations.
The analysis shows that, although the market generally takes into account the short-term impact of halving, it often underestimates its long-term effect. For example, after the 2012 halving, the price of bitcoin rose by 8,839% in one year. In addition, trading volumes on the Bitcoin spot market tend to fall in the month following the halving, but increase substantially thereafter.
For miners, halvings represent a challenge since their income in bitcoins is immediately reduced. However, the increase in the price of bitcoin and the improved efficiency of mining equipment often compensate for these initial losses. For example, despite a 46% drop in miners' revenues in the month following the halving of 2020, an annual increase of 1,458% was observed thereafter.
The next halving, scheduled for April 2024, is expected to reduce Bitcoin's annual inflation rate from 1.73% to 0.85%. This reduction in block reward is expected to remove $11.6 billion of annual new supply from the market, at a time when Bitcoin is already showing strong appreciation and increasing transaction volumes.
Halving is more than just a technical mechanism; it is a significant economic event with profound implications for the price, production and strategy of players in the cryptocurrency market. While the approach of 2024 already promises notable changes, the entire sector seems to be positioning itself for another phase of growth and adaptation.
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