By Christo de Wit
With the fourth bitcoin halving just weeks away, crypto investors are looking to previous halvings to consider how it could affect the price.
Every four years, the rate at which new bitcoins are released into circulation gets slashed by half. It's part of a mechanism to prevent the inflationary impact that would be caused by releasing the total supply (which is capped at 21 million bitcoin) too quickly, with the last bitcoin to be mined around 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.
The halving is built into the algorithm that runs the bitcoin network as a deflationary measure and occurs every four years or so. There are no guarantees and it is anyone’s guess whether the price will drop, rise, or maintain after the April halving.
The third bitcoin halving took place in May 2020 and two previous halvings preceded dramatic price increases. However, bitcoin’s recent rally to a new all-time high has meant this cycle looks distinct from previous cycles – possibly driven by the recent institutional interest driven by the approval of Bitcoin ETFs in the US.
This cycle already looks very different from previous cycles, with bitcoin testing all-time highs near the halving for the first time in its history.
Many analysts also believe that the halving has had minimal impact on bitcoin’s previous price runs. Even if you accept the idea that the halving is a primary driver, there’s no guarantee it will continue to be so in the future.
Market conditions
The months leading up to the halving have seen the approval of the first-ever spot bitcoin exchange-traded funds (ETFs) in the United States and massive inflows into these funds of over $12 billion. March also saw a new all-time-high bitcoin price of over R1.37 million on Luno. Recently, there have been outflows of around $83 million from the ETFs, another factor to consider ahead of the halving.
Bitcoin is still a relatively new technology and financial asset. With the inflow of institutional investment and ETFs, the industry looks very different today from what it did five or ten years ago. And this cycle already looks very different from previous cycles.
Looking back
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.
* De Wit is the country manager of Luno in South Africa.
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