The four-yearly Bitcoin halving is set to happen in the early hours of tomorrow morning (Saturday, April 20).
It’s a hard-coded process within the Bitcoin blockchain to limit the mining of new Bitcoins, protecting their value by keeping them scarce. Historically, the event has led to a significant jump in the value of Bitcoin.
The halving event happens when block height reaches 840,000 (block height increases as new blocks are mined). At that point, the reward for mining Bitcoin transactions is cut in half, which in turn decreases the rate at which new bitcoins are generated. The mining industry is challenged as their operations become less profitable.
There are now close to 19.7 million Bitcoin in circulation, with a maximum of 21 million able to be mined – ever. That’ll take longer than you might think, thanks to the halving event.
Olympics for Crypto
Cryptocurrency exchange platform, Swyftx lead market analyst Pav Hundal, said it was ‘like the Olympic Games for the crypto industry’.
“It’s a monumental event that comes once every 4 years and has historically had a profound impact on the price of Bitcoin and the wider cryptocurrency market,” he said.
“This month’s halving will be the fourth since Bitcoin’s inception in 2009, and it’s been highly anticipated by both cryptocurrency enthusiasts and casual traders alike.
“That’s because historically there has been a huge surge in the price of Bitcoin in the 12 months following each of the previous three halvings, which has in turn led to a bull market.”
Why is the halving so significant?
The Bitcoin halving is the most anticipated event in Crypto because historically it’s been followed by BTC surging in price in the 18 months following. That’s meant Bitcoin has entered mainstream headlines and the retail markets have taken notice.
The first Bitcoin halving occurred in November 2012 when the price was just $12 AUD. Within 18 months, the price had reached $1,267. With the benefit of hindsight, had you invested $1000 in BTC at the time of halving, you would have gained $100,000 in less than two years!
Despite the incredible surge, Bitcoin was still relatively unknown at this point.
The 2016 halving saw price go from approximately $863 to $23,620. It was in this period where Bitcoin first hit the mainstream and people started to take notice.
The last bull run occurred in 2021 and while it followed the 2020 halving event, the price of Bitcoin experienced a flash crash as a result of the Covid-19 pandemic. Stimulus packages injected liquidity into markets seeing Bitcoin quickly surpassed its previous all-time high and reach as high as $91,866.
Why does the Bitcoin halving historically increase BTC’s price?
Bitcoin’s price has tended to increase following halving events, driven by fundamental supply and demand dynamics. During these events, the rate at which new BTC is generated and enters circulation is halved, effectively diminishing the new supply overnight.
This scarcity, if coupled with sustained or increased demand for Bitcoin, exerts upward pressure on Bitcoin’s price, leading to the bullish trends historically observed.
Consider a parallel with traditional assets: Imagine the scenario where gold production is halved every few years! If gold output suddenly decreased while demand remained strong, the price of gold would rise. This same concept applies to Bitcoin.
So, will Bitcoin’s price rise after the next halving? Caution…
Investing in Bitcoin around a halving can seem like a home run. However, Bitcoin does not exist in a vacuum, and its price is ultimately determined by the market. If there are more sellers than buyers, diminishing supply doesn’t matter – Bitcoin’s price will not increase. There are several factors that make the pending halving a little different from previous scenarios:
Macroeconomic climate
The world is still recovering from the supply shock caused by the COVID-19 lockdowns, with both inflation and interest rates relatively high.
“These macroeconomic factors tend to dissuade more volatile investments like BTC, as investors look toward cash or defensive assets,” Swyftx’s Pav Hundal warns.
“A halving event has never occurred amid such high global interest rates.
“It’s worth noting however, that during US election years, financial markets – including the stock market and cryptocurrency markets – tend to perform better due to increased investor optimism and expectations of favourable economic policies.”
Geo-political unrest
The crypto market took a hit earlier this week as a result of Iran’s retaliation against Israel’s attack on the Iranian embassy in Syria and concerns that could lead to a larger conflict involving the United States.
The market reacted similarly to Russia’s invasion of Ukraine, but Bitcoin quickly recovered.
This rising geo-political tension could reduce the traditional impact of the BTC halving.
But we have Bitcoin ETFs…
The January approval of several spot Bitcoin ETFs in the United States has meant big financial institutions like BlackRock and Fidelity have been buying up much of the available BTC.
“These ETFs have been extremely popular since launching in January, attracting hundreds of millions of dollars of investments into Bitcoin every day since inception,” Mr Hundal said.
“They’ve made Bitcoin one of the most popular assets on Wall Street and amongst institutional investors this year.”
Since Bitcoin ETFs were approved, the crypto market has surged with the Bitcoin price gaining about 60 per cent and peaking at A$111,440 in mid-March.
BlackRock CEO Larry Fink, labelled the IBIT ETF as “the fastest-growing ETF in the history of ETFs”.
Add to that this week’s move by Hong Kong to approve the launch of spot Bitcoin ETFs, granting Chinese investors access to BTC, which had previously been banned.
This surge in demand, coupled with the decreasing supply from the block reward halving, could lead to a significant increase in Bitcoin’s value.
How do you buy Bitcoin in Australia?
Swyftx’s Pav Hundal said investment decisions would be driven by individual preferences and risk appetites.
“If you do choose to allocate Bitcoin or another cryptocurrency to your portfolio, choose a reputable, secure exchange that is AUSTRAC registered, ISO certified, and is well reviewed,” he said.
“Australian exchanges are generally well run and most, like Swyftx, have high quality, local customer support.”
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