- Next year, the Bitcoin blockchain network will undergo a new automatic reward adjustment.
- The so-called halving, as its name suggests, consists of cutting in half the amount in BTC given to miners for each block of transactions processed.
- Historically, the dates before and after this halving usually generate Bitcoin price growth. For investors, knowledge of this can translate into an unparalleled opportunity.
The Bitcoin price is in a very positive momentum and could be better in the coming weeks. After reaching the 30K barrier for the first time in the last 10 months, the pioneering digital currency is generating excitement among investors. But there is one event that gives a clearer picture about the future value of this digital asset: halving.
Halving consists of halving miners’ rewards for each valid block of transactions they process on the network. Simply put, through complicated algorithmic workings, connected machines enable transactions to be made possible on the blockchain. It should be remembered that there is no bank or trusted third party to do this work.
For executing that task, the network rewards miners with new coins. The halving’s job is to make those rewards smaller and smaller in order to generate coin scarcity. The latter ensures that the price of Bitcoin will increase in value in the future. It also ensures that crypto acts as a hedging asset against crises.
It is important to note that the Bitcoin network has already experienced 3 halvings in its history. These halvings occur automatically approximately every four years or every 210,000 blocks mined. The most recent one took place in May 2020.
Bitcoin scarcity and the cut in rewards
The price of Bitcoin is an unknown quantity for investors and this could be tied to the fact that it is determined by many factors. In the immediate times surrounding a halving, most of the factors that make that market change combine to imprint a bullish effect. During all the reward cuts that traded on this blockchain the pattern was the same and everything points to the fact that there will be no exceptions now.
For a number of analysts consulted on CNBC, the period taken before and after the cut is approximately 12 months. In other words, the value of the pioneering digital currency rises dramatically one year before and then one year after each halving.
As stated above, the sense of scarcity caused by the halving causes investors to have more interest in that asset. For example, during the most recent halving, the amount of reward coins per block went from 12.5 BTC to 6.25 BTC. During the first and second halving, the rewards went in the same respective order from 50 BTC to 25 BTC (2012) and from 25 BTC to 12.5 BTC (2016). For next year’s 2024 adjustment, the reward per block will be 3.125 bitcoins.
As such, the cut in rewards affects miners. This means that the revenues of large companies in that industry are decimated. For investors this is a good sign due to the scarcity of the asset. The cryptocurrency is becoming increasingly popular among users and, at the same time, it is becoming increasingly scarce. In short, there are few to many and that translates into an increase in the price of Bitcoin, which could be the norm going forward.
It should not be lost sight of the fact that the BTC coin has an issuance cap of 21 million units.
The price before halving
The formula that Bitcoin price rises 12 months before and 12 months after halving has its explanation in scarcity. The behavior of the market during the three halves traded so far is unambiguous. Below, we review the data for each case, starting with the 12 months prior to each halving.
“Looking at historical patterns of Bitcoin halving, it appears that investors often accumulate Bitcoin in the period leading up to the halving,” Jamie Sly of CryptoCompare expresses to the same media outlet.
In the run-up to the first halving, which occurred on November 28, 2012, the value of the digital currency grew exponentially. It was a 384% upward momentum from $2.55 per coin to $12.35. On July 9, 2016, the second reward cut adjustment occurred on the Bitcoin network. During the approximate 12-month period prior, the coin price rose 142% from $269 to $651 each.
The third, and so far current cut occurred on May 11, 2020. In the same previous time frame, the price of the pioneering cryptocurrency advanced 19%. On that occasion, it went from $7,190 to $8,500 per coin. With this data, taken from Tradingview.com, it can be noted that there is an upward trend in Bitcoin’s value in the approximate one-year period before the cut.
Now, one year away from the 2024 halving, the price of the currency is up 80% since the beginning of 2023. This rise could confirm what the historical data says about the halving and the Bitcoin price.
The 12-month period following the cut
Pioneering digital currency prices have a strong bull-run in the 12 months leading up to the rewards adjustment. But that bull run seems to pale in comparison to the bull-runs in the 12 months after. Once again, the historical data from the three halvings so far performed speak of explosive growths in the coin’s value.
Investors are feeling the true power of the currency’s scarcity and stoked interest is increasing demand. This is a time when everyone wants bitcoins, but there is less supply. The following is a review of the price rises during the 12 months following the reward cuts.
A year after the 2012 cut, with bitcoin still an unknown asset, its price soared from $13 to $260. A year after the next halving, the 2016 halving, the coin’s value grew 2,824% to more than $19,000 per coin. By the 12 months or so after the 2020 halving, the coin reached highs of nearly 700% growth. Shortly thereafter it reached its all-time high of $69,000.
Once again, the timing surrounding the halving seems to coincide with price rises. The current state of the market suggests that the Bitcoin price already fulfilled, at least in part, the first part of the pattern. For investors who feel they missed the opportunity there is hope that the best part is missing.
Thus, taking the theory as true, by 2025 there could be an explosive increase in the price of this cryptocurrency. One should not lose sight of the fact that halving is not the only factor affecting the price of digital currency. Other events such as regulations, platform hacks and bankruptcies, and speculation by whales or large holders also tend to exert pressure.
Bitcoin struggles to maintain its price momentum
So far in 2023, the Bitcoin price is maintaining strong momentum after a 2022 of bad times. Bad news over the past year descended on the crypto market from all directions. The collapse of Terra UST and the bankruptcy of a string of exchanges and lenders led by FTX intensified the plunge in the coin’s value.
But in 2023 Bitcoin’s performance is more than outstanding, up 80% as of this April 14. The highlight of this rise is that the coin seems to partially break the correlation it brought since 2021 with risky stocks. During the banking crisis in mid-March, this digital asset performed as a haven of value, in the strict sense of the word, for the first time.
Faced with panic in the banking sector, users and investors in virtually all financial institutions withdrew part of their funds. A good part of the withdrawn deposits went to the cryptocurrency market. The reasons for this can be varied and one could argue that the anti-bank philosophy of these currencies was appealing. But it can also be argued that they are among the fastest and easiest assets to access.
Whatever the reason, the Bitcoin price benefited from the crisis and despite the stock stumbles, it solidly reached the current price and could continue to rise. Although the coin’s value is up a healthy 80% so far this year, it is still down more than -50% compared to its November 2021 price, when it reached its all-time high.
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