Article reprint source: ChainCatcher
Author: Grapefruit, ChainCatcher
In the early morning of April 20, at block height 840,000, Bitcoin completed its fourth halving. After the halving, the reward for miners per block has dropped from 6.25 BTC to 3.125 BTC.
In the week before the halving, the price of BTC plummeted from $70,000 to $59,600, hitting its lowest price since March. As of press time, the price of BTC is stable at around $63,000. In the past 7 days, the price of Bitcoin has fallen by 10%.
The essence of Bitcoin halving is to control the Bitcoin supply speed and inflation rate. By reducing the Bitcoin output rate through a program, the issuance speed of new Bitcoin coins can be reduced, the supply of tokens issued can be reduced, and the inflation rate can be reduced.
After this halving, miners reduced the amount of BTC provided to the market from 900 per day to about 450, and the BTC issuance rate also dropped from 1.8% to 0.83%.
It is precisely because of the reduction in the issued supply that the imbalance between supply and demand of BTC in the market may increase the scarcity of Bitcoin and drive the price up.
Since the price of BTC has risen sharply to varying degrees after the first three Bitcoin halvings, which is closely related to the bull market cycle of the entire crypto market, "Bitcoin halving" is also regarded as a catalyst for the crypto bull market and is of great significance to the development of the entire crypto market.
Chris Gannatti, global director of Bitcoin ETF asset management company WisdomTree, once bluntly stated that "Bitcoin halving is one of the most significant events in the crypto field this year."
Google browsing data shows that searches for the term "Bitcoin halving" have hit an all-time high, far exceeding the previous high set in May 2020.
With a halving every four years, will the rise in Bitcoin still come as expected?
Every time the Bitcoin blockchain generates 210,000 blocks, the Bitcoin block reward is halved. The Bitcoin network generates a new block every 10 minutes on average, so this halving occurs approximately every 4 years.
As of today, Bitcoin has completed four halvings, with three halvings in 2012, 2016, and 2020. Starting from the initial 50 BTC reward per block, the first halving was to 25 BTC, the second halving was to 12.5 BTC, the third halving was to 6.25 BTC, and the fourth halving is today's 3.125 BTC.
Looking back at the historical data of the three halvings, after each Bitcoin halving, the BTC price will rise rapidly within 6-18 months and reach a record high. Therefore, the impact of halving on the Bitcoin price trend and subsequent market conditions has attracted industry attention and is called an industry cycle.
The first halving was completed on November 28, 2012. After the halving, the price of BTC rose from US$12 at the time of the halving to US$1,242, an increase of more than 100 times.
The second halving occurred on July 9, 2016, after which the BTC price rose from $648 to $19,800, a price increase of 4,158%.
The third halving was completed on May 12, 2020, and the BTC price rose from $8,181 to $64,895, a price increase of 693%.
The fourth halving was completed on April 20, 2024. At this time, the price of Bitcoin is about US$63,000. Will it usher in a new round of skyrocketing prices as expected in the previous three times?
Regarding the impact of this halving on the future trend of Bitcoin, the industry generally believes that the impact on Bitcoin prices is not obvious in the early stage of halving, but it is beneficial in the long run. Because from the perspective of supply and demand, Bitcoin halving reduces the speed of Bitcoin issuance, and the halving of miners' block rewards can also ease the speed of new Bitcoins entering the market. The reduction in supply and the stable or growing demand have created conditions for the rise in Bitcoin prices.
At present, many well-known crypto figures in the market are optimistic about the subsequent trend of Bitcoin after this halving and have made bullish predictions.
Among them, Plan B stated that based on the expected analysis of Bitcoin's supply and halving, the price range of Bitcoin will be between US$100,000 and US$100 after 2024, and predicted that the price of Bitcoin may soar to US$532,000 by 2025.
Anthony Scaramucci, founder of Skybridge Capital, said in January that within a year and a half after the halving, the price of Bitcoin could reach $170,000 or more, and in the long term, the market value of Bitcoin will reach half of that of gold.
Galaxy Digital CEO Michael Novogratz is betting that Bitcoin will rise sharply and could reach $150,000 after the halving.
On the contrary, some industry insiders are bearish on the future of Bitcoin. They believe that the correlation between Bitcoin halving and price increases does not mean a causal relationship. It is challenging to model these events based on historical analysis alone. The price trend of Bitcoin is also affected by many comprehensive factors such as market sentiment, adoption trends, global market liquidity, and macroeconomic policies.
In addition, from the perspective of supply and demand, 19.7 million BTC have been mined, and the number of unmined bitcoins is about 1.3 million (21 million-19.7 million), which accounts for a very small proportion. The impact of Bitcoin halving on Bitcoin supply is already very weak and cannot be the main driving force for the rise in Bitcoin prices.
Among them, Grayscale researcher Michael Zhao once warned that although historical precedents show price increases, there is no guarantee that Bitcoin prices will rise. He pointed out that external macroeconomic factors have played an important role in the past surge in Bitcoin prices, and halving is only one of many factors that affect Bitcoin prices.
In the latest article of "Heatwave" published in April, Arthur Hayes, co-founder of BitMEX, agreed that halving will push up the price of Bitcoin in the medium and long term. However, the price of Bitcoin will enter a turbulent period before and after the halving, and predicted that the price of Bitcoin will plummet before and after the halving.
Mining stocks fell on the eve of halving
In addition to the price trend, cryptocurrency miners are the group most affected by the halving of Bitcoin rewards, which will cause the input-output ratio of the Bitcoin mining industry to drop sharply. The halved block reward means that the number of BTC rewarded to miners for newly mined blocks will be directly reduced by half, which also makes Bitcoin miners the target of public criticism every four years. If the BTC price remains unchanged, the investment and operating costs remain unchanged, while the mining returns decrease, the investment return cycle of mining machines will be extended. Combined with the current outbreak of geopolitical conflicts and the uncertainty of energy costs, the survival pressure of the mining industry has also increased sharply.
Benchmar analyst Mark Palmer warned before the halving that most publicly traded Bitcoin mining companies have launched or announced plans to increase electricity and computing power as a means of adjusting to reduced revenue and gross profit margins.
Bloomberg predicts that the entire cryptocurrency mining industry will lose about $10 billion after this halving.
Before the halving, the stocks of the top listed mining companies have all seen a sharp drop. The stock prices of Bitcoin mining companies such as Marathon Digital Holdings (MARA), Riot Platforms (RIOT), Iris Energy (IREN) and CleanSpark (CLSK) have fallen for three consecutive days. Among them, the stock price of Marathon Digital Holdings, the largest public Bitcoin miner, has fallen by more than 20% in the past month, while Riot Platforms has fallen by nearly 25%.
However, CleanSpark Mining Company emphasized in an interview that the halving of Bitcoin does not mean a halving of mining company revenue. The difficulty of Bitcoin mining will drop by up to 15% after the halving, which will bring additional rewards to miners.
Regarding this halving, a miner who has experienced three halving cycles said that the decline in block rewards will lead to a decrease in miners' income, but the impact on large miners or mining companies is limited. It is actually a good thing for miners who can stay, and their share in the entire mining market will increase. This halving will push mining to further move towards specialization, refinement, high efficiency and head concentration, and small-scale home-based miners or miners with less advanced equipment will be eliminated.
He emphasized that the current profit of mining is no longer in mining itself, and transaction fees on the Bitcoin chain may become a new source of income.
Regarding the current cost of mining, he calculated that based on the S19Pro+Hyd model, computing power of 198t, power consumption of 5445w, and cost of US$0.08, the shutdown price of Bitcoin is around US$65056.
However, based on the historical performance of Bitcoin halving prices, miners do not need to worry too much. After all, halving also corresponds to an increase in Bitcoin scarcity, and the revenue from the eventual increase in Bitcoin prices can usually easily cover the increased costs of mining companies.
In addition, since the launch of Ordinals in December last year, Bitcoin ecosystem applications have entered a state of explosive growth. Bitcoin ecosystem Layer2, Side chain, Rune Protocol, etc. have continued to develop. The prosperity of the chain will also bring transaction income to Bitcoin miners.
The impact of halving is weaker than Bitcoin spot ETF
However, this halving is also different from the previous three times. The entire crypto industry and Bitcoin itself are experiencing some new changes that are attracting attention. The Bitcoin market has become more and more mature, with more exchanges, financial products and traditional financial investors participating in it. Ordinals, inscriptions, BRC20, Bitcoin Layer2 and other on-chain ecological products are flourishing. Users need to rethink and re-evaluate Bitcoin as an asset from a new perspective.
“Cold and deserted” is how an old OG who has experienced three Bitcoin halving cycles feels about this halving.
He explained that the fourth Bitcoin halving is far less popular than the previous three. The first two halvings in 2016 and 2020 attracted great attention from the crypto market. Various communities were filled with discussions about halvings, and related news, AMAs, offline activities, etc. were constantly happening. Even the halvings of tokens such as BCH and LTC were hyped up a few months in advance. After the halving in 2016, there was Ethereum ICO, and in 2020, there was DeFi Summer and the public chain war. However, the community attention to the fourth Bitcoin halving does not seem to be high. There is very little information on halving discussed by community users, and even the news reports on Bitcoin halving are sporadic and pitifully few.
Another OG said that it was not just the halving that was not popular this time. This round of Bitcoin price increase was also less popular than usual. It broke through $70,000 without anyone noticing. Users seemed to become active only after it reached $70,000.
In this regard, community user Lin said that a big reason behind this is that the main driving force behind this round of rising prices is the Bitcoin spot ETF, which is mainly dominated by institutions, while retail investors account for a relatively small proportion.
In addition, with the development of blockchain technology in several rounds of bull markets, the crypto market has derived various Layer1 and Layer2, LST, Bitcoin inscription ecology, DeFi, GameFi, AI and other segmented products from Bitcoin and Ethereum. Bitcoin is no longer the only choice for users, and users' attention has also been distracted.
Currently, the market capitalization of the crypto market is close to 2.5 trillion U.S. dollars, with Bitcoin accounting for about 50% (1.27 trillion U.S. dollars), and the remaining 50% is assets in various segments.
Compared with the previous halvings, the only difference in the fourth Bitcoin halving is the Bitcoin spot ETF, which has an impact on the supply and demand pattern of Bitcoin even greater than the halving. More and more institutional investors are beginning to include Bitcoin in their investment portfolios, and these institutional investors have more funds and resources. Their participation will trigger larger-scale market fluctuations.
Since the United States approved the Bitcoin spot ETF in January, the weekly inflow into Bitcoin ETFs has ranged from US$1.2 billion to as high as US$2.5 billion, and a total of tens of billions of dollars have flowed into the crypto market.
Currently, the ETF’s average daily spot trading volume of BTC is estimated to be between $4-5 billion, accounting for 15-20% of the total trading volume of centralized exchanges worldwide.
Glassnode data on April 19 showed that the total asset management scale of spot Bitcoin ETFs was close to US$60 billion, holding 851,000 BTC, accounting for about 4.3% of the total Bitcoin in circulation.
On April 15, Hong Kong approved a Bitcoin spot ETF.
The launch of a spot Bitcoin ETF has significantly changed the supply and demand dynamics of BTC and established a new benchmark for BTC demand. In essence, ETFs have reduced the available BTC supply circulating in the market through large and sustained buying activity.
Glassnode charts show that the amount of Bitcoin that ETFs absorb from the market is far greater than the amount of Bitcoin miners produce every day.
The impact of newly mined bitcoins coming into circulation is becoming increasingly smaller compared to the surging demand for ETFs.
Shenyu also said that the current players in the market are different from the previous players. The main feature of this cycle is that incremental funds mainly flow into Bitcoin through channels such as ETFs.
