Bitcoin price swings can feel unnerving, especially for new investors. Predicting what will happen next is tough as the market rises and falls. One minute, Bitcoin looks like it's on track to reach $100,000; the next, it's plummeting to $30,000. The truth is, no one can say what will happen to Bitcoin in the future. However, Bitcoin halving is one of the things that can help us make educated guesses about the future price of Bitcoin. This article will answer the question: What is Bitcoin halving? We’ll break down how halving works, why it matters, and key indicators you can use to predict what will happen to Bitcoin’s price after halving events.
One way to prepare for the upcoming halving is to stay informed with up-to-date Bitcoin analysis. Bitcoin Magazine Pro's premium membership offers valuable insights to help you achieve your goals, like understanding how Bitcoin halving works and using this knowledge to make informed investment decisions.
What Is Bitcoin Halving and Why It Matters for BTC Investors
Bitcoin halving occurs when the reward for Bitcoin mining is cut in half. It occurs every four years, and the next halving is expected to happen sometime in 2028. The halving policy was written into Bitcoin’s mining algorithm to counteract inflation by maintaining scarcity. In theory, the reduction in the pace of Bitcoin issuance means that the price will increase if demand remains the same.
The Role of Halving in Bitcoin's Scarcity and Store of Value Narrative
Bitcoin's inflation rate is less than 2%, which will decrease with further halving. The currency's inflation rate is relatively easy to calculate since there is a set supply of Bitcoin at any given point. Halving’s role in controlling the supply of new Bitcoins is one of the reasons the world’s most popular asset is seen as a store of value more akin to gold than a fiat currency.
“Bitcoin’s production scarcity is what defines its finiteness, and when reward goes down, supply is constrained,” says Chris Kline, chief operating officer of Bitcoin IRA. “Increasing demand at a time when supply is constrained has a positive impact on price, which can make Bitcoin alluring to investors.”
How Does Bitcoin Halving Work?
A decentralized network of validators verifies all Bitcoin transactions in a process called mining. They are currently paid 3.125 BTC when they are the first to use complex math to add a group of transactions to the Bitcoin blockchain as part of its proof-of-work mechanism. At Bitcoin’s current price, 3.125 BTC is worth about $200,000.
That’s a decent incentive for miners to keep adding blocks to keep Bitcoin transactions running smoothly. Those transactions are added roughly every 10 minutes, and the Bitcoin code dictates that the reward for miners is reduced by half after every 210,000 blocks are created. That happens approximately every four years, often accompanied by heightened Bitcoin price volatility.
When Is the Next Bitcoin Halving?
The Bitcoin algorithm dictates that halving happens based on the creation of blocks. People are still determining precisely when the next halving will occur, but experts point to April 2028 as an anticipated date. That’s roughly four years since the last one, which occurred on April 19, 2024. Experts say the somewhat predictable nature of Bitcoin halvings was designed not to shock the network significantly.
But that doesn’t mean there won’t be a trading frenzy surrounding Bitcoin’s next halving. “Historically, there is a lot of Bitcoin price volatility leading up to and after a halving event,” says Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner. “However, the Bitcoin price typically ends up significantly higher a few months later.” While many other factors influence Bitcoin’s price, halving events seem bullish for the asset after initial volatility eases.
When Was the First Bitcoin Halving?
The first Bitcoin halving occurred in November 2012. The next halving was in July 2016. A halving followed this in May 2020. The most recent halving was in April 2024. The reward, or subsidy, for mining started at 50 BTC per block when Bitcoin was released in 2009. The amount drops in half each time a new halving takes place.
For instance, after the first halving, the reward for Bitcoin mining dropped to 25 BTC per block. The last halving should occur in 2140. At that point, there will be 21 million BTC in circulation and no more coins will be created. From there, miners will just be paid with transaction fees.
Why Is Bitcoin Halving Important?
“One of the most important features of Bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs. The available supply of fiat currencies rises and falls under the watchful eyes of national central banks, but the total supply of Bitcoin is fixed and immutable.
There will only ever be 21 million Bitcoin. More than 19 million Bitcoins have already been mined, leaving under 2 million to be created. The Bitcoin protocol periodically reduces the number of new coins miners earn in a process called halving. The last Bitcoin halving took place on April 19, 2024. Halving’s role in controlling the supply of new Bitcoins is one of the reasons BTC is seen as a store of value more akin to gold than a fiat currency.
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Should You Invest in Bitcoin During a Halving?
Investing in Bitcoin during a halving is a mixed bag. On the upside, many investors see halvings as potential price catalysts. Historical price increases following past halvings, especially the one that occurred in July 2020, have fueled these expectations. On the downside, markets are unpredictable.
Just because prices increased after the past halving does not mean they will do the same after the next halving. As an investor, you must also consider market conditions at the time of your investment. External events could also impact Bitcoin price performance.
What Happens During Bitcoin Halvings?
To understand why Bitcoin halvings could influence price, it helps to know what happens during a halving event. Bitcoin halving is the process that reduces the rewards for mining new Bitcoin blocks by half. The event occurs approximately every four years, or every 210,000 blocks, and is built into the Bitcoin protocol to control supply and introduce scarcity. Fewer new Bitcoins entering circulation could influence price, potentially benefiting investors.
Bitcoin Halving and Market Trends
Many investors have high expectations for halvings because, in the past, prices generally trended upward after the event. However, the trends historically moved slowly over months and years until the next halving, and there is no guarantee that Bitcoin will follow the same trajectory. So, whether you invest in Bitcoin before, at, or after a halving depends on market conditions, your outlook, and your risk tolerance level.
The Importance of Bitcoin Halving Investment Strategies
While miners experience the immediate effects of halving, traders and investors are often the secondary beneficiaries of this event. Notably, the price of BTC moves up close to and after every halving cycle. That is exactly why you should have Bitcoin halving investment strategies in place to help you use the price moves for both buying and selling.
Indicators for Bitcoin Halving Investment Strategies
Bitcoin halving hinges on scarcity, so investment strategies should be considered in cohesion with other indicators. And the choice of indicators should involve those that can establish relationships between supply, scarcity, network growth, on-chain metrics, and, obviously, the price.
The Future of Bitcoin Halvings Beyond 2140
A question that underpins the future of Bitcoin is the following: as halvings keep unfolding every four years, what will happen when miners don’t get Bitcoin rewards anymore, an event anticipated by 2140 when all 21 Million Bitcoin blocks will be issued? Unless the price of Bitcoin or its mining efficiency continues to double every four years, a scenario could unfold where the hashrate declines, compromising the network’s security as miners wouldn’t have incentives to secure the network.
The Shift to Transaction Fees: Sustaining Miner Incentives in a Post-Halving Era
Is this scenario a fatality? Not really. An alternative mechanism that would incentivize miners exists, and it is built around transaction fees. In this system, users could attach a fee to their transactions for inclusion in the next block, prompting miners to prioritize transactions with higher fees and effectively creating a block space auction.
Interestingly, when writing the Bitcoin whitepaper, Satoshi Nakamoto envisioned that transaction fees would offset miners’ rewards over time as the chain’s usage increased, something already partially realized. It remains important to highlight that transaction fees constitute a small fraction of miners’ revenue.
The Potential Problems with Transaction Fees
On the other hand, this dynamic based on transaction fees could ultimately lead to expensive transactions and exacerbate Bitcoin’s scalability issues. This situation highlights the importance of implementing scalable Layer-2 solutions over the Bitcoin protocol. A few projects are trying to accomplish this, but the limitations of the Bitcoin protocol make the task very hard.
Unlike Ethereum, Bitcoin isn’t Turing complete, which means it cannot compute generic programs. In settling a layer-2 on a base chain, one must verify the validity of the state of Layer-1 or be able to roll back an invalid Layer-1 state. Due to the limitations of executing Bitcoin Layer-1, settling Layer-2 on Bitcoin is not straightforward, and a potential upgrade of Bitcoin protocol could be necessary.
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Key Bitcoin Indicators and the Related Price Actions
Stock-to-Flow: A Key Indicator for Bitcoin Halving Events
The stock-to-flow model is a pricing indicator that correlates Bitcoin's scarcity with its halving events. The S2F analysis is done by dividing the asset's stock (the existing supply) by the new and annually produced supply. The chart comprises a thin line signifying the model or the fair price of the asset and a colored line following it, varying at times to show deviation.
Reduced Annual Supply
Bitcoin halving directly impacts the new BTC supply by halting miner rewards. Therefore, we can expect a surge in the Stock-to-Flow metric, with the annually evaluated new supply getting a hit. Note that the total supply of BTC doesn’t change. It remains 21 million Bitcoins (BTC). Nevertheless, halving reduces the annual supply or the number of Bitcoins (BTC) entering the system each year, lowering the issuance rate and enhancing scarcity.
The logic behind using it is that S2F directly correlates with the price of BTC. This means that while charting, the S2F indicator also has a price-related section, which historically has surged following halving events. As having amplified scarcity, the fair or the model price line surges, usually taking the actual price along with it.
Investors planning to go long in Bitcoin should track the S2F before and after the halving. A good ideal entry point could be model price line surges post-halving, and its variance with the actual price reduces. Do note that a variance or deflection on the upside is desirable, as who wouldn’t want the exact cost to beat the model price?
If you are an investor willing to wait until halving, consider an entry when, post-halving cycle, the fair price and the actual price lines touch each other, with the price moving up from the downside. You would then bet on the actual price line above the model price line.
Hash Rate: Tracking Miners’ Reaction to Halvings
Bitcoin’s hash rate is also considered the total computational juice dedicated to miners. The higher the hash rate, the more secure the Bitcoin network is.
If you plan on following the hash rate indicator close to halving, both before and after, you will know that the event is intended to reduce block rewards after every 210,000 blocks. Reduced rewards can hit miner profitability, lowering the hash rate in the process.
Miners relying on block rewards might sell their setups or BTC in their Bitcoin wallet. Therefore, post-halving, not just the hash rate but also the price of BTC might drop. Reduced prices can impact other miners, as the existing block reward would amount to less. This can lead to a short-term downward spiral.
Timing the Market
As a trader, you can track the hash rate for short positions. If the hash rate nosedives immediately after halving, the prices might experience volatility, which can be a good time to short BTC. Yet, if you wish to go long, waiting for Bitcoin’s built-in difficulty adjustment protocol to kick in and the hash rate to stabilize is better. Once that happens, you can fit in the S2F model and enter at the time.
A decrease in hash rate can also boost prices. It might bring more miners into the mix, adding to network security. Plus, it can slow down, block production, and cause scarcity. Also, a supply shock can introduce scarcity if miners move out of the ecosystem.
Active Addresses: Understanding Bitcoin User Behavior
This metric defines the number of unique addresses transacting on the Bitcoin network within a given period. This indicator allows you to track user engagement and also network activity.
Halving is an anticipatory event. Also, historically active addresses have shown a surge in value around events like these. But these could be people creating new Bitcoin wallet addresses and holding Bitcoin at those addresses before halving.
Analyzing Network Activity Before Halving
The logic is that active addresses or individual transactions on the Bitcoin network might increase for selling, buying, or moving BTC before halving. Therefore, active addresses can predict the right entry points when paired with market sentiments, technical analysis tools, and even volume indicators.
Tracking active addresses regarding halving is relatively simple. You can check for spikes or drops close to the halving cycle—6 months on either side—and check if the trading volume validates the same. Also, if the user sentiments, checked via tools like the LunarCrush, indicate positivity, you might consider entering.
Bitcoin Days Destroyed (BDD): Investor Sentiment Indicator
Here is an indicator that identifies the movement of BTC that has been held long. This can be a reliable tool as it picks the investors’ minds and can track their behavior. As for the formula, BDD values are the product of the BTCs involved in a particular transaction and the number of days since those BTCs moved.
BDD can track investor sentiments. If the BDD metric changes, there might be an increase in interest and market activity regarding Bitcoin. Also, in May 2023, Bitcoin volume dropped significantly, indicating a low BDD value. This might also mean people aren’t trading or moving much BTC but are sitting on it.
Identifying Profit Booking After Halving
At first glance, an increase in the BDD value indicates profit booking. Once that is encountered pre- or post-the-halving event, one of the better Bitcoin halving investment strategies would be to look at the transfer volume to see if people are moving their BTC. If that also holds, you can look at the specifics by checking for whale and brilliant money movements using a Bitcoin explorer like Blockchain.com or Blockchain.
Once you can identify whale BTC wallet(s), you can even track the Bitcoin exchange flows to track the state of BDD.
Rainbow Chart: Visualizing Market Sentiment
The rainbow chart is a valuation tool for BTC, charted as the logarithmic curve. The chart comprises rainbow-like colored bands showcasing market sentiments and the corresponding price moves.
Even without considering halving, the rainbow chart boasts zones that can tell how investors view BTC at any given time. For instance, the lowest band corresponds to a “Fire Sale,” meaning that BTC is oversold and accumulated at the counter. The chart highlights buy-sell zones according to BTC’s price pattern.The logic behind using the rainbow chart is simple. Savvy investors prefer accumulating BTC at specific points, pre and post-halving. If you can identify such zones, it becomes easier to locate entry points.
Predicting Market Trends with Rainbow Chart Patterns
The historical patterns associated with the rainbow chart show that BTC accumulation usually starts 6 to 12 months before the halving events. These trends can be used to predict the next phase of entries.
Similarly, if you notice the trends, the price starts shifting colors—from the buy and accumulate areas to the overbought territory. 6 to 12 months post-halving. Therefore, as a trader, you might identify the right exit points or potential shorting opportunities.
Fear and Greed Index: Predicting Market Behavior
This sentiment indicator measures investors’ prevailing emotions in the Bitcoin market. Its value ranges anywhere between 0 to 100.
Anticipatory events like the halving are expected to make investors and traders greedy. The index will then move into the “Greed” zone. Also, if the halving occurs in the wake of a bear cycle, as an investor, you might even get the opportunity to enter BTC at oversold and high “Fear” zones.
Market Sentiment with the Crypto Fear & Greed Index
Anything between 0 and 30 indicates fear and even uncertainty. Values ranging from 60 to 100 indicate optimism. Notably, greed is expected to peak 6 to 12 months after halving, as during that phase, most accumulation occurs. But investors should be wary of corrections after the “Greed” peak.
If you are looking for reliable and quick-to-understand Bitcoin halving investment strategies, check for the most “Fearful” zones 6 to 12 months before halving. This might be a good time to enter. Buying in the neutral zone of 40-50 can also be an option, provided you use:
- Active addresses
- Rainbow charts
- Other indicators to confirm
Miner Charts: Understanding the Bitcoin Network's Core
Miners form the core of the Bitcoin network. Also, positivity regarding miner-specific charts indicates that miners aren’t feeling the heat and pushing their holdings out to exchanges for selling. Some indicators you should focus on:
- Miner revenue
- Miner capitulation
- Hash Ribbons
Miner revenue usually drops immediately after halving, which also lowers the price. Miners typically sell off their holdings to compensate for the drop in revenue. The logic behind using these charts is simple. Hash ribbons are based on the hash rate and help identify potential reversals regarding the hash rate.
When reading the hash ribbon chart, you must see the relationship between the 30-day simple moving average and the 60-day simple moving average of Bitcoin’s hash rate.
Identifying Buy Signals with Technical Analysis
The shorter-term MA crossing above the longer-term MA shows the end of miner capitulation and stabilizing of the hash rate. This is determined as a green dot. If the 10-day SMA and 20-day SMA crossover happens during this phase, you get a buy signal, represented by a blue dot.
As an investor, you should wait for an increase in post-halving mine revenue to enter. As for hash ribbons, the prerequisite would be for the miner’s capitulation to end. Once that happens, you can apply technical analysis to locate the best time to buy Bitcoin.
Bitcoin Dominance: Understanding BTC’s Market Behavior
This indicator reveals Bitcoin’s market cap about the total market cap. Despite the indicator primarily responsible for determining the influence of Bitcoin in the financial space, it might help you identify the investing potential.
Historically, Bitcoin dominance has picked up pre and post-halving, with investors flocking to it in anticipation of a price rise.
Interpreting Bitcoin Dominance for Trading Strategies
It is worth noting there are many ways of interpreting Bitcoin’s dominance. When the supremacy increases in a bull market, while the price of BTC increases, it is better to prefer BTC over other assets. Nevertheless, if, despite BTC’s price rise, the dominance decreases, you might have to sit it out.
If you plan on trading around Bitcoin halving using the Bitcoin dominance indicator, look for surges or drops six to 12 months before and after halving. If Bitcoin dominance surges, it might indicate accumulation, which could lead to a price rise.
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