The Halving Might Not Perform to Expectations

The impact of the Bitcoin halving on crypto prices is often overestimated, and the next halving, set for April 2024, may play out differently than previous ones — according to a leading analyst.

The Bitcoin halving is a predetermined event in the Bitcoin protocol where the reward for mining a new block is halved. This halving event occurs approximately every four years, or technically, every 210,000 blocks.

Here’s a breakdown:

Block Rewards: When Bitcoin was first introduced in 2009, miners received 50 BTC for every block they mined. This is known as the “block reward.” Miners play an essential role in the Bitcoin network by validating and recording transactions on the blockchain. In return for their computational work, they receive this block reward.

Halving Events: The Bitcoin protocol has a built-in mechanism to reduce this reward by 50% approximately every four years. This means the block reward dropped from 50 BTC to 25 BTC in the first halving (2012), then to 12.5 BTC in the second halving (2016), and to 6.25 BTC in the third halving (2020). The next halving, which is expected in 2024, will reduce the reward to 3.125 BTC, and so on.

Purpose: The halving serves several purposes:

Controlled Supply: Bitcoin has a maximum supply cap of 21 million coins. The halving events ensure that the total supply of Bitcoin will never exceed this number. By reducing the rate at which new bitcoins are introduced, the halving helps prevent inflation and mimics the scarcity properties of precious metals like gold.

Economic Incentive: The halving can impact miners’ profitability, especially if the price of Bitcoin doesn’t increase to counteract the reduced block reward. However, the potential for future rewards, coupled with transaction fees (which are not affected by halvings), still provides an economic incentive for miners to continue securing the network.

Price Speculation: Historically, Bitcoin halvings have been closely watched events because they can influence Bitcoin’s price. Reduced supply, combined with steady or increasing demand, can lead to price increases, though other factors also play a role in the market dynamics.

The Bitcoin halving is a built-in mechanism to ensure that the total supply of Bitcoin remains fixed and limited. It also serves to potentially counteract inflationary pressures as the cryptocurrency’s issuance rate decreases over time. In addition, the Halving is generally considered one of the main catalysts driving Bitcoin’s biggest upside moves.

Despite the bullish narrative surrounding the halving, however, the event by itself does not necessarily guarantee Bitcoin’s price appreciation.

If the reduced supply of new BTC is not accompanied by significant demand, prices are unlikely to surge. 

Also, the halving is an entirely predictable event, meaning all market participants know in advance when it will occur. Therefore, its current price may already reflect the halving’s impact before it happens.

“Things that we most anticipate generally don’t happen,” said Bloomberg analyst Mike McGlone, commenting on the much-anticipated event.