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The 2024 Bitcoin halving schedule becomes crucial given the aftermath of the 2022 crypto winter and 2023 economic downturn. Curbing BTC creation will gradually limit the supply of Bitcoin, similar to the shortage of gold.
The total supply of Bitcoin is capped at 21 million, with just over 19 million already mined. This leaves almost 2 million Bitcoins left to be created. Here's what to expect from the April 2024 Bitcoin halving.
The winter is over?
Bitcoin saw a significant rally in 2023, recording a notable increase of around 152% over the year. This increase comes after a turbulent period in 2022, in which Bitcoin faced challenges such as the collapse of key projects, liquidity problems and several high-profile bankruptcies following its record high in 2021.
The recent surge in cryptocurrency prices has lifted companies out of stagnation and prompted mining companies to accelerate their profit efforts ahead of the Bitcoin halving. As the next halving approaches, the rewards for producing Bitcoins will be halved, resulting in a rush for profits among miners.
Source: TradingView
How does it work?
Bitcoin mining is the rewarding process of verifying and adding new transactions to blocks using computational work. Miners ensure the consistency, timeliness and immutability of the blockchain ledger and receive newly created coins in return.
|
Date |
Number of blocks |
|
January 3, 2009 |
50 BTC |
|
November 28, 2012 |
25 BTC |
|
July 9, 2016 |
12.5 BTC |
|
May 11, 2020 |
1.5625 BTC |
With the introduction of Bitcoin in 2009, miners received a reward of 50 Bitcoins per block. This value halved to 25 Bitcoins per block in November 2012, known as the second reward era. Bitcoin halvings occur every 210,000 blocks, reducing the reward offered to miners by half. These events are programmed to control the supply and demand dynamics of Bitcoin and are guided by the pre-programmed functions.
Map
Reduced rewards pose financial challenges, especially for those who rely heavily on mining revenue. The fixed supply of Bitcoin exacerbates this problem and can potentially lead to bankruptcy if rewards decrease without a corresponding increase in transaction fees or Bitcoin value. Additionally, increasing competition for mining leads to scarcity, which drives up Bitcoin prices but makes mining less profitable.
Miners collect money
Bitcoin's hashrate, which measures the computing power required for mining, has risen to an all-time high. This suggests that miners are deploying ever greater resources to solve complex mathematical puzzles and earn Bitcoins.
BTC hashrate. Source: Grayscale
Historical hash rate data suggests that miners tend to increase capital spending to remain competitive ahead of the halving. This Bitcoin rush led to increased mining difficulties in the months leading up to the event. As a result, miners who cannot keep up with the higher production costs are forced out of the market.
According to Grayscale, there was a noticeable trend in the fourth quarter of 2023 of miners selling their Bitcoin holdings on-chain, which would likely serve to build liquidity before block reward reductions. These measures suggest that Bitcoin miners are well equipped to deal with the challenges ahead, at least in the short term.
Even if some miners leave the market, the resulting drop in hash rate could lead to adjustments in mining difficulty, potentially reducing the cost per coin for the remaining miners and maintaining network stability.
Historical price movements
Historically, Bitcoin prices have increased following halving events. After the first halving in 2012, the price shot up from $12 to $126 within six months. Similarly, after the second halving in 2016, the price of Bitcoin rose from $654 to $1,000 in seven months. In 2020, after the third halving, the price rose from $8,570 to $18,040 over the same period.
Source: Grayscale
While the initial concern may prompt some investors to sell their Bitcoin holdings, renewed interest in the currency is expected to follow. The law of supply and demand is likely to stabilize the market and potentially lead to a recovery in Bitcoin prices after an initial decline.
2024 is different
A recent study from Coinbase highlights increasing institutional interest in crypto assets and signals a shift towards more mature market behavior. This trend is characterized by decreasing volatility and an increasing tendency towards sophisticated investment strategies. This transition marks a new era of crypto investing where institutional players move beyond mere speculation and take strategic, long-term positions.
Source: Coinbase
As Grayscale points out, the upcoming Bitcoin halving in April 2024 is expected to be significantly different from previous events due to increased on-chain activity and positive market updates. The factors that shape this event include:
- Miners' proactive fundraising efforts, such as stock offerings and reserve sales, can help offset revenue difficulties.
- Possible mining difficulty adjustments caused by changes in hash rate could benefit remaining miners by reducing production costs.
- The rise of Inscriptions has boosted on-chain activity as millions of token collectibles generate significant transaction fees for miners.
- Registration activity offers a new way to maintain network security through higher transaction fees while block rewards decrease.
- The continued adoption of Bitcoin ETFs can absorb selling pressure and have a positive impact on Bitcoin's market structure by providing a stable source of demand.
The latter could be a significant factor. US spot Bitcoin ETFs have quickly absorbed significant investments, with initial net inflows totaling approximately $1.5 billion in the first 15 trading days. These inflows, which represent a potential three-month post-halving selling pressure, indicate the potential for widespread adoption.
Angel investor Anthony Pompliano suggested that Bitcoin's recent $50,000 milestone is not the final peak due to interest from Wall Street. He suggested that as Bitcoin continues to rise, individual holders will begin selling their BTC, which will lead to increased demand from Wall Street funds looking to capitalize on the cryptocurrency's uptrend.
What awaits you in 2024?
The upcoming halving will reduce the rate of new BTC entering the market and reduce rewards from 6.25 to 3,125 BTC. This change could prompt miners to improve their efficiency to maintain profitability. As a result, we can expect advancements in mining hardware aimed at more energy efficient and powerful rigs to adapt to lower yields.
Crypto analyst Ali Martinez recently sparked optimism in the cryptocurrency community with a tweet suggesting that the upcoming Bitcoin halving could trigger an extended period of bullish trends for the leading digital asset.
According to a report from Coinbase, the next halving could potentially boost Bitcoin's performance, but it also emphasizes that the results are somewhat speculative due to limited historical data. Since there have only been three halving events in the past, a clear pattern has yet to emerge, especially considering factors such as global liquidity measures that have influenced previous events.
Global liquidity appears to have peaked in the near term, and with the next halving still 9 to 10 months away, it remains uncertain how this might overall impact Bitcoin's price behavior in the future.
Source: Coinbase
Cryptocurrency analyst Benjamin Cowen stated that due to the early halving year pattern, Bitcoin typically reaches the bull market support band (consisting of the 20-week SMA and 21-week EMA) in January or February of the halving year.
Bitcoin has defied bearish market conditions and demonstrated remarkable resilience and development over the past year. Despite the challenges, on-chain activity has increased, strengthening market structure and highlighting scarcity, challenging outdated notions and emerging stronger.
Curb your enthusiasm
It is important to recognize that an increase in Bitcoin price after a halving is not guaranteed. The highly anticipated nature of these events implies that if the price were certain to rise, rational investors would likely buy in advance, potentially driving the price higher before the halving. Experience with other cryptocurrencies that did not see a consistent price increase after halving suggests that while scarcity can impact price, other factors also have an impact.
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