Halving of Bitcoin 2024: Analysis, Impact, and Short- and Long-Term Perspectives

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In this new appointment we will talk about the Bitcoin (BTC) halving, one of the most important events for the world of crypto. This event occurs approximately once every 4 years and the last time, in 2020, it marked the beginning of one of the biggest Bull Markets in history. For those who have not heard of it yet, we will briefly mention what exactly the halving is and what will change after it has occurred. We will then try to understand what we can expect this time from Bitcoin and its price, trying to summarize everything there is to know about the Bitcoin halving scheduled for the end of April 2024.

Why Bitcoin’s halving is so important

The Bitcoin halving is perhaps the most anticipated moment for those who follow the world of crypto. This is due to two main reasons. The first is its cyclical nature, as it occurs approximately every 4 years. The second, which is perhaps also the reason that brings the masses closer to Bitcoin, is that historically the halving has almost always marked the beginning of a strong bullish phase. The cyclical nature of Bitcoin in these terms is truly impressive, so there are very high expectations.

Bitcoin trend, halving dates
Figure 1 – Bitcoin trend (in red the halving dates)

Let’s try to clarify things a bit, especially from the perspective of those who operate systematically, in order to have all the necessary tools to evaluate what to expect from this event. We will clarify what are the concrete facts, and what may be just speculations, so that we can be ready to face the markets in the best way regardless of the effect of the halving scheduled for April.

What is the Bitcoin halving

Let’s start from the basics by first clarifying what Bitcoin halving consists of. It has been mentioned its cyclical nature in terms of years (every four years) but this definition is not exactly correct. The cyclical nature of halving is not measured in months or years but in the number of blocks generated in the blockchain. It is necessary to mention the mechanism of creating new Bitcoins, the so-called Mining.

Simplifying, Mining is a big competition among all the miners’ machines that, using their computational power, try to solve the probabilistic calculations necessary for the validation of a block. The first miner to complete these calculations receives the reward currently set at 6.25 Bitcoin for each block. After the halving, this reward will be exactly halved to 3.125. Not for nothing, in English “halving” means precisely halving, as it is nothing more than the halving of the rewards that are paid out by the Bitcoin blockchain to the miner who solves and validates a block. 

Considering that the goal of the Bitcoin blockchain is to validate a block every 10 minutes, and that the halving occurs exactly every 210,000 blocks, if we multiply 10 minutes by 210,000 we arrive at about 4 years. In reality, a block does not always take exactly 10 minutes: sometimes miners manage to solve it sooner, sometimes it takes a little longer. For this reason, the exact date of the halving can only be estimated.

The halving of 2024, the fourth in Bitcoin’s history, will therefore occur at block 840,000 and, as mentioned, the rewards for miners will decrease from 6.25 to 3.125 Bitcoin per block. The halving process will continue to repeat over the years and it is estimated that, approximately in 2140, the maximum limit of 21 million Bitcoins will be reached and no one will be able to produce new ones, therefore 0 new Bitcoins will be issued for each block.

What impact will the halving have on the market?

If we want to make some calculations to quantify the impact of the halving on the market, it is possible, for example, to evaluate the daily production of Bitcoin in monetary terms. By multiplying the number of Bitcoins issued for each block, which is 6.25 Bitcoins, first by 6 (to obtain the number produced in an hour) and then by 24, we will get how many Bitcoins are produced per day, which is 900 per day. 

Considering the current price of about 50,000 dollars, producing 900 Bitcoin per day means having a monetary equivalent of 45 million dollars of new Bitcoin entering the market every day or, better, into the pockets of miners. After the halving at the end of April 2024, there will be a reduction of about 22.5 million dollars in Bitcoin supply for each single day (clearly at the same price). This is the real, effective, and quantifiable impact that the halving will have on the supply of Bitcoin. A question then arises spontaneously: if the supply is lower, does the price have to rise for sure? To answer, one must actually pay attention and clarify well what this reduction in supply implies.

Bitcoin is an inherently inflationary asset because new ones are produced every 10 minutes. The halving cannot therefore make Bitcoin deflationary, as happens with other cryptos that are ‘removed’ from the market with “burning” mechanisms, but simply reduces the amount of new Bitcoins introduced into the market every day, thus reducing the growth of supply over time.

inflation bitcoin
Figure 2 – Bitcoin inflation rate (https://bitbo.io/it/)

Looking at the trend of recent years, we can see how the demand for Bitcoin has been steadily increasing in the long term and has in fact grown much more than the supply, confirming how Bitcoin’s long-term bullish trend has probably been supported by the effect of previous halvings.

As for the short term, it is difficult to find a correlation with the halving, since speculative movements usually prevail. No one can know whether the price will rise or fall a week before or a month after the halving, because it is an event known to everyone, and as every trader knows very well, these events or news are always already priced in advance by the market. The halving itself will not impact in any way on short-term dynamics, so if we see movements, these will only be of a speculative nature.

Conclusion

My advice is to be aware of the probable long-term impact of Bitcoin’s halving, which as we have seen exists and is quantifiable, perhaps preparing for a period of greater volatility, which short-term speculation could bring between those who think that history will repeat itself and those who instead expect that this time everything will be different.

bitcoin halving cycles
Figure 3 – Comparison of past halving cycles with the current one (https://bitbo.io/it/)

Looking at the history of Bitcoin and its halvings, the statistic that what happened in the past has repeated almost the same way every four years is truly surprising. Will it happen again this year? Although the chances that things will go the same way may be high, it cannot be taken for granted. This is because there may actually be different conditions and reactions from the market. In 2020, for example, there was the Covid-19 pandemic, with interest rates practically at 0 and the quantitative easing of central banks, while today interest rates are much higher. In addition, Bitcoin ETFs have recently been approved, marking a very important turning point in the possibility of accessing crypto investment. There are therefore different conditions and it will be interesting to see how Bitcoin will behave.

In conclusion, investors should continue with their investment strategy, just as we systematic traders will continue to operate as we always have, diversifying our strategy portfolios with the only certainty that what will happen near the halving is impossible to predict and that only by closely monitoring market trends can we discover it.

Until next time and happy trading!

Andrea Unger