TL;DR: The halving is when the number of blocks mined to “create” a Bitcoin is officially cut in half, meaning that the amount of Bitcoin created daily is reduced, which increases its scarcity and reduces its inflation rate, thanks to good old supply and demand. Naturally, this also heavily impacts the price. Previous halvings have shown staggeringly huge growths, of 4-figure percentages. All this happens on a cyclical basis, every four years. Now read on…
The crypto world is abuzz with talk of the upcoming Bitcoin halving. Anyone new to the world of crypto may well be wondering what a halving is, and why on earth is it such a big deal. This post will explain the halving, its significance, and its potential impact on the world of crypto.
Bitcoin Halving – A major event
The Bitcoin halving is a pre-programmed event that happens roughly every four years, and occurs when the number of Bitcoins mined reaches a certain threshold. When this happens, the number of new Bitcoins awarded to miners for verifying transactions is cut in half. This means that the rate at which new bitcoins are created is reduced, making them more scarce and valuable – which is significant, given that the total number of Bitcoins that will ever exist is capped at 21 million.
You might be thinking, why should I care about the halving? Well, historically, the halving has had a significant impact on the price of Bitcoin, and has generally led to a rise in its price, making it an exciting time for investors and traders alike.
The immediate impact: Bitcoin rockets
Understanding the four year cycle of the halving effect, especially the enormous impact that the halving has always had on the price of BTC, means that we need to look at the history of how halvings have happened, and what the effects have been.
As shown in the table below, the previous halvings, (2012, 2016, 2020) all showed phenomenal growth in the twelve months that led up to them (which is where we currently are in the 2024 halving cycle), as well as during the halving year itself; yet the year following the halving has repeatedly been the best performing period, showing staggering gains.
Past performance is not an indication of future results.
To illustrate: in the first year after the 2012 halving, we saw a huge price surge, the momentum of which carried into the following year. From the months leading up to the halving, and in the months directly following it, Bitcoin’s price went up to $32 from $12.42, and just kept going, finally passing $1000 for the first time on the 30th of November 2013, when it hit $1,127.45.
This is the point widely considered to be when Bitcoin began to gain notoriety.
The next halvings followed similar patterns, with similar timings, affirming the four-year cyclical nature of the events.
- Immediately prior to the 2016 halving, Bitcoin stood at around $646. Following the 2016 halving, it once again passed the $1,100 mark in January 2017, and kept on going until hitting $20,000 in December.
- Almost a year after the 2020 halving, the price of Bitcoin was hovering around $46,000 (in August) and by November it reached approximately $68,500, its all-time high.
Of course, what goes up must also come down. The two years following the halving event (2014, 2018, 2022) are traditionally periods of decline for Bitcoin.
For instance, following the incredible heights that Bitcoin attained in December 2017, it took more than two years before Bitcoin saw the other side of $20,000. However, in this specific instance, while the pattern was the same, the context was somewhat different. Crypto was now becoming more present in the public consciousness. Stories about Bitcoin and other cryptoassets began appearing in publications not limited to the niche markets it had previously been in, but those from actual mainstream news outlets – indicating a new interest and awareness.
The aftershock – or how does the halving impact other cryptoassets?
The halvings set a pattern across the crypto realm that influences pricing and supply dynamics, thereby affecting other cryptoassets. If you imagine the crypto world as a party where everyone’s dancing to the Bitcoin beat, the Bitcoin halving is like the DJ turning down the volume on the speakers every four years.
As mentioned earlier, the scarcity of new Bitcoin means less supply, which can impact its price. Other cryptos often take cues from Bitcoin’s moves, so when Bitcoin’s price goes up, it can lead to a broader market effect across the crypto space.
Not all cryptos follow the exact same four-year rhythm set by Bitcoin. While many altcoins are often correlated with Bitcoin, (i.e. if the price of Bitcoin goes up, so does the price of other cryptoassets), this is not always the case. To revisit the party analogy given above, while Bitcoin’s halving might make its price twerk, it’s like a remix for other cryptos – they’ll feel the vibes, but they have their own dance floors, so they may experience different price movements depending on their own supply and demand dynamics.
Fun fact: Halvings are not limited to Bitcoin. Other altcoins also go through halving events: for example, Litecoin had a halving in mid-2023.
Halving price effects: A sneak preview
In previous halving events, the lead up to the halving indicated the price of Bitcoin to be on a steady climb, as investors sensed the upcoming scarcity of new bitcoins.
Looking at price performance alone, the current cycle (see the black line in the chart below) seems to be riding a similar wave to previous market cycles. History could be indicating some potentially interesting price moves.
With that, it’s important to keep in mind that crypto prices are notoriously volatile, and there are many factors that can influence their movements.
What’s the Halving ETA?
The next Bitcoin halving is predicted to take place in April 2024, approximately four years after the previous halving in 2020. This means that we still have some time to prepare and monitor the market before the next halving event.
In Conclusion: be prepared for April 2024
The Bitcoin halving is a highly significant event in the world of crypto, with the potential to significantly impact the value of Bitcoin and other altcoins. Anyone interested in investing in crypto should keep the halving on their radar.