When Bitcoin's price swings, it can feel like riding a roller coaster with no end in sight. One minute, you're on top of the world; the next, you're losing your lunch halfway down a steep drop. While Bitcoin's price can swing dramatically at any time, it's hard not to notice the price action pattern surrounding Bitcoin halving events. The next halving is slated for sometime in 2028, and naturally, many investors are wondering: What Is Bitcoin Halving, and will Bitcoin go up after halving? The answer? Well, it's complicated. This article will explore the potential market scenarios following Bitcoin's halving and how they could impact its price and investment strategy.
Bitcoin Magazine Pro offers Bitcoin analysis as a valuable tool to help you achieve your objectives. Regular insights from experts can help you better understand the potential market scenarios following Bitcoin's halving events and how these scenarios could impact its price and your investment strategy.
What is the Bitcoin Halving and Why It Matters
The Bitcoin halving, or "halvening," refers to a pre-coded event in the Bitcoin protocol every 210,000 blocks (roughly every four years). It reduces the reward miners receive for validating blockchain transactions. This process is designed to control the issuance of new bitcoins and maintain its scarcity, thus ensuring a limited BTC supply—essentially, the halving cuts the BTC rewards given to miners in half.
The original Bitcoin whitepaper published by the pseudonymous Satoshi Nakamoto in 2008 specified that there would be a finite supply of 21 million bitcoins. This fixed supply mechanism was introduced to prevent inflation and mimic the scarcity of precious metals like gold. By regulating the rate at which new bitcoins are generated, the protocol aims to create a deflationary currency with the potential to hold its value or appreciate over time.
The halving plays a pivotal role in controlling the rate at which new bitcoins are introduced into circulation, slowing the production of new coins over time. When Bitcoin first existed in 2009, miners received 50 BTC as a reward for each block they successfully added to the blockchain.
The first halving event occurred in 2012, reducing the block reward to 25 BTC. Subsequent halvings in 2016 and 2020 decreased the reward to 12.5 and 6.25 bitcoins, respectively. The 2024 Bitcoin halving will reduce the block reward to 3.125 BTC; the next halving will occur in 2028.
|
|
Block Height |
BTC Halving Dates |
Block Reward (BTC) |
BTC Price (USD) |
|
BTC Launch |
Genesis block |
Jan 3, 2009 |
50 |
N/A |
|
Halving 1 |
210,000 |
Nov 28, 2012 |
25 |
$12.35 |
|
Halving 2 |
420,000 |
Jul 9, 2016 |
12.5 |
$650.53 |
|
Halving 3 |
630,000 |
May 11, 2020 |
6.25 |
$8,821.42 |
|
Halving 4 |
840,000 |
April 19, 2024 |
3.125 |
$63,652.80 |
|
Halving 5 |
1,050,000 |
~2028 |
1.5625 |
? |
|
Halving 6 |
1,260,000 |
~2032 |
0.78125 |
? |
|
Halving 7 |
1,470,000 |
~2036 |
0.390625 |
? |
|
Halving 8 |
1,680,000 |
~2040 |
0.1953125 |
? |
Who Are Bitcoin Miners and Why Do They Matter?
Miners play an essential role in the Bitcoin network, which operates on a proof-of-work consensus mechanism. Miners contribute to network security through mining, solving a complex mathematical algorithm to commit and add transactions to the Bitcoin blockchain. The mining process not only helps secure the network but also results in the circulation of new bitcoins as a reward for the miners’ efforts.
Miners, mostly large-scale commercial operations, invest substantial resources in hardware and electricity. While it was once possible to mine Bitcoin solo with a home computer, the introduction of specialized ASIC mining hardware significantly increased the difficulty of mining, making mining on a standard home computer outside of mining pools virtually impossible.
What Are Block Rewards?
Block rewards are the incentive mechanism that encourages miners to dedicate computing power to the network. These rewards consist of newly issued Bitcoins given to miners when they successfully solve a block.
Block rewards are also the only mechanism for net new Bitcoin to enter the market, so the amount miners receive and subsequently decide to sell has important implications for overall supply.
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What Happens to Your Bitcoin After Halving?
After a Bitcoin halving event, your existing Bitcoin holdings remain unchanged. The halving process doesn't directly affect the number of bitcoins you hold. Nevertheless, it can indirectly impact Bitcoin’s price and various aspects of the BTC ecosystem, which is precisely why investors, traders, and enthusiasts pay close attention to it.
Here are a few reasons why the Bitcoin halving is significant and why people should care. The halving constrains the supply side, which reduces the rate at which new bitcoins are created. This, in turn, affects the balance between supply and demand, potentially leading to shifts in the market value of Bitcoin.
Basic economic principles dictate that when the supply decreases while demand remains constant or increases, the asset's value will likely rise. This anticipation of increased scarcity often leads to a surge in investor interest and speculation surrounding Bitcoin.
Market Volatility
The Bitcoin halving has historically been associated with heightened volatility in the alternative financial market. Speculators and investors closely monitor the market dynamics leading up to and following the event, trying to predict its impact on the price of Bitcoin. This anticipation often fuels price fluctuations and increased trading activity.
Implications for Miners
As the reward for mining new blocks is halved, the profitability of Bitcoin mining is directly impacted. This reduction in rewards can pose challenges for miners, especially those operating with higher energy costs and less efficient hardware.
Miners need to assess the viability of their operations post-halving and adjust their strategies accordingly. This often leads to shifts in the mining landscape, with smaller or less efficient miners potentially being pushed out of the market. At the same time, more significant, more resourceful operations continue to thrive.
Technological and Community Development
The Bitcoin halving is a significant milestone that prompts discussions and debates within the blockchain community. It encourages developers and stakeholders to explore innovative solutions to address the challenges posed by the changing dynamics of the Bitcoin ecosystem.
This drive for technological advancement often leads to the development of new tools, protocols, and initiatives that improve the scalability, efficiency, and security of the Bitcoin network, ultimately fostering its long-term sustainability and growth.
Long-Term Investment Implications
For long-term investors, the Bitcoin halving represents a critical event that underscores the asset's deflationary nature and potential as a store of value. The predictable scarcity introduced by the halving mechanism positions Bitcoin as a hedge against inflation and economic instability, appealing to individuals and institutions looking to diversify their investment portfolios.
The halving reinforces the narrative of Bitcoin as digital gold, reinforcing its appeal as a long-term investment asset with the potential for substantial appreciation over time.
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Will Bitcoin Go Up After Halving? Here Are 3 Potential Scenarios
If you believe that history repeats (or at least rhymes, as Mark Twain said), Bitcoin will likely follow the same pattern as it did in its three halving cycles. Based on the historical evidence, Bitcoin follows a very defined pattern in each halving cycle, which Wall Street investment bank Morgan Stanley refers to as "the four seasons of Bitcoin."
A Pattern of Ascent and Collapse
The cycle starts with a gradual ascent, followed by a sharp rise as Bitcoin searches for a new all-time high. As investors pile into Bitcoin and the media joins the BTC bandwagon, intense froth and speculation ensue, followed by an inevitable collapse in value.
The end of the cycle is a Bitcoin winter that can last as long as 12 months. Then, the next halving occurs, and the cycle starts anew.
Potential Price Targets and Market Predictions
In this scenario, we can expect Bitcoin to rally for 12 to 18 months after the halving as it soars to a new all-time high. Since the halving took place in April, Bitcoin should reach a new all-time high by the end of 2025. For example, investment firm Bernstein thinks Bitcoin could hit $200,000 in 2025.
But from there, Bitcoin will likely experience extreme volatility as it attempts to push even higher. At some point, the price of Bitcoin could collapse, just as it did in 2022, as investors sell their holdings and lock in profits.
Cathie Wood of Ark Invest has crunched the data and concluded that Bitcoin is particularly prone to sustained declines of 77% or more. If Bitcoin manages to hit a new high of $200,000 by the end of 2025 and doesn't go any higher, we could be looking at a price of just $40,000 heading into 2028. But then Bitcoin will begin to rally again as the next halving cycle approaches, and analysts will once again predict new all-time highs for Bitcoin.
A Best-Case Scenario: Steady Growth and Less Volatility
In a best-case scenario, Bitcoin will lose some of its volatility and become much more predictable in terms of future price performance. Instead of wild swings and gyrations, there is a steady march to a new all-time high.
ETFs and Institutional Investment
This might sound unlikely, given Bitcoin's historical track record as a volatile asset, but consider all the money pouring into Bitcoin via the new spot Bitcoin exchange-traded funds. The thinking here is that inflows into these new ETFs will help to prop up the price of Bitcoin and absorb any selling pressure. At the same time, more buy-and-hold institutional investors will enter the Bitcoin market, and they will be less likely to attempt to profit from short-term price swings.
Achieving Sustainable Growth
If you are hoping that Bitcoin will eventually reach $1 million by 2030 —which is what some analysts are now predicting— then Bitcoin needs to generate annualized returns of 75% or more. This is the figure that Cathie Wood used in her original projection of a $1.48 million price for Bitcoin. In short, Bitcoin must soar 75% every year between now and 2028, and only then will there be a path to $1 million for Bitcoin by the time of the next halving.
Given that Bitcoin generated annualized returns of 230% in the 10 years between 2011 and 2021 and turned in 150% returns last year, 75% may not be as heroic an assumption as it first seems.
The Worst-Case Scenario: Bitcoin Goes to Zero
The ultimate worst-case scenario, of course, is that Bitcoin goes to zero. Some investors are still convinced that Bitcoin is nothing more than a speculative bubble and that it offers no intrinsic value. At some point, even longtime Bitcoin bulls might decide to dump their holdings, and that could lead to a long, tragic decline in price as we head into the next halving cycle in 2028.
While I don't personally subscribe to this view, there is a fair amount of political and regulatory risk. While some politicians are pro-Bitcoin and are trying to establish a regulatory framework where it can flourish, many more politicians are anti, and still view Bitcoin as something that's only good for money laundering and evading international sanctions.
Buy Bitcoin for the Long Haul
Trying to time Bitcoin's market moves is a fool's errand. Instead of buying low and selling high, you will likely buy high and selling low.
A much better strategy is to buy and hold Bitcoin for the long haul. By the time the next halving rolls around in 2028, you might be pleasantly surprised by just how much Bitcoin has appreciated.
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