Tonight, just after midnight (UK time), the Bitcoin network is set to undergo its quadrennial ‘Halving’ event, a significant occurrence on the cryptocurrency calendar.
Proactive has offered a thorough examination of Halving’s fundamentals. Essentially, it is an algorithmically programmed event within the Bitcoin network that reduces the mining reward for new blocks by half.
This event, which happens about every four years (or every 210,000 blocks to be exact), serves as a method to combat inflation.
So, what has been Bitcoin’s historical reaction to these Halving events?
During the 2012 Halving, Bitcoin’s price surged by 250% in the subsequent 100 days and by 8,000% over the next year.
In 2016, the price dipped by 8% in the first 100 days but rose by 284% within the year. In 2020, Bitcoin saw increases of 870% and 1,200% in the same time frame, respectively.
These fluctuations suggest that there is no clear pricing trend attributable to the Halving, indicating that it does not consistently affect Bitcoin’s price in the short to medium term.
Despite a general upward trend in Bitcoin’s value over the years, its rise is more closely tied to growing mainstream acceptance and popularity rather than the technical aspects of the Halving events that occur every four years.
This perspective was emphasized by Malcolm Palle, founder and executive chairman of the Aquis-listed Web3 investor Coinsilium.
“In previous cycles, the market impact of the halving was never immediate, and I anticipate the same this time,” Palle mentioned to Proactive.
He added, “However, the halving historically sets the stage for the onset of the next bull phase, which many in the industry are also expecting this time.”
While Palle does not foresee an immediate surge in price, he regards the Halving event as “a pivotal moment and strongly supportive of bitcoin’s long-term fundamentals and its investment appeal.”
“Indeed, with the recent introduction of ETFs first in the US and now in Hong Kong, there’s a growing belief that we are entering a crypto ‘supercycle,’ and I must admit, I too am a firm believer in this possibility,” Palle explained.
He referenced the US Securities and Exchange Commission (SEC)’s recent approval in January of 11 spot-Bitcoin exchange-traded funds from major asset managers like BlackRock, VanEck, Fidelity, and WisdomTree.
Shortly after their launch, these ETFs have accumulated about $53 billion in bitcoin, accounting for over 4% of Bitcoin’s total market capitalization, based on figures from Friday, 19 March.
This significant influx has been a powerful boost for Bitcoin, contributing to its more than 50% increase in value year to date.
Bitcoin miners are going to feel the pain short term
“The initial impact of the halving event will be felt most acutely by bitcoin miners, who will now have to double their efficiency just to maintain their current position,” Palle remarked.
This is likely to cause a near-term supply shock for the miners, as their daily Bitcoin rewards will be cut in half.
This partly explains the sharp decline in publicly traded mining stocks this year.
Nasdaq-listed companies such as Iris Energy, Riot Platforms, and Marathon Digital Holdings have all seen their values drop by over a third since the beginning of the year.
In London, Argo Blockchain‘s value has decreased by two-thirds, and in Toronto, HIVE Digital Technologies (TSX-V: HIVE, NASDAQ: HIVE) has also seen a third of its value erased.
The competition among bitcoin miners is expected to intensify following the Halving, potentially leading to a shakeout of those less equipped to adapt to the new efficiency demands.
However, those miners who can navigate these challenges may be well-positioned to capitalize on the next supercycle.
“Most likely, the larger miners have anticipated this event and adjusted their economic models to withstand the immediate shock to supply,” Palle observed.
One thing is certain: The landscape of the bitcoin and bitcoin mining markets is set to look markedly different a year from now.
At the time of writing, Bitcoin’s trading price stood at $64,572.85, as of 4:31 p.m.
