Get to know the concept of Bitcoin halving
In early 2009, Bitcoin emerged as the world's first cryptocurrency, changing the way we view money and the financial system. During its long journey, Bitcoin has experienced various significant events that have impacted the crypto ecosystem as a whole. One of the most important events in Bitcoin history is the “halving,” which occurs once every four years.
In this article, we will discuss how the Bitcoin halving phenomenon affects the price of Bitcoin and other cryptocurrencies, while looking back at the events that occurred from previous Bitcoin halvings.
What is Bitcoin Halving?
Since its launch in 2009 by Satoshi Nakamoto, #bitcoin has become the most famous cryptocurrency in the world and has attracted the attention of investors, developers, researchers and even governments. One of the most interesting aspects of Bitcoin dynamics is the event known as a “halving.”
Halving is an event that occurs every 210,000 blocks in the Bitcoin network, which occurs approximately once every four years.
When the halving occurs, the block reward received by Bitcoin miners who successfully crack the complex mathematical code in the mining process is reduced by half.
In the first four years since its launch, the block reward received by Bitcoin miners was 50 Bitcoins, but with the first halving in 2012, it was reduced to 25. The next halving, in 2016, reduced the block reward to 12.5 Bitcoins. Most recently, in 2020, the block reward was reduced to 6.25 Bitcoins.
Halving serves an important purpose in the Bitcoin ecosystem. First, it helps control inflation by reducing the new supply of Bitcoin coming into the market. Second, it makes these assets more rare and valuable over time.
Analysis of Bitcoin Price Movement Patterns Post Bitcoin Halving
Bitcoin's first halving occurred on November 28, 2012. Before this halving, the price of Bitcoin was trading around $12. However, after the event, the price of Bitcoin rose dramatically. Within a few months, Bitcoin reached $230, creating incredible profits for its holders.
Not only did the price increase, but the first halving also introduced Bitcoin to more people. Extensive media coverage and growing interest have many people getting involved in the crypto ecosystem for the first time. This is one of the big draws of halving: increased prices and attention.
Bitcoin's second halving took place on July 9, 2016. At that time, the price of Bitcoin was around $650. While not as big as the spike seen after the first halving, this event still had a positive impact on Bitcoin's price. Within a year after the second halving or in 2017, the price of Bitcoin had increased to reach the price range of $19000.
This halving was also witnessed by more people, including financial institutions and institutional investors. Interest in cryptocurrencies continues to grow, and many other cryptocurrency projects are starting to develop. This was a period where Ethereum, the second largest cryptocurrency by market capitalization, also started to gain attention.
Bitcoin's third halving occurred on May 11, 2020. When the third halving occurred, the price of Bitcoin was around $8,000. However, what happened next was something that had never happened before
After the third halving, Bitcoin price experienced a significant increase. At the end of 2020, Bitcoin reached a new price record above $30,000 and then continued to skyrocket until within a year after the third halving or in 2021, the price of Bitcoin had increased to reach the price range of $69,000.
One factor influencing this rise is strong institutional interest, with companies such as MicroStrategy and Tesla announcing large investments in Bitcoin.
Additionally, this period also created great interest in DeFi (Decentralized Finance). DeFi projects use blockchain technology to build decentralized financial platforms that allow users to borrow, lend, and exchange crypto assets without the need for intermediaries. DeFi provides an additional boost to interest in cryptocurrencies and blockchain as a whole.
All the data above is historical data which cannot reflect future price movements. There is no guarantee that something similar will happen in the future. However, historically, after the Bitcoin halving, the price of $BTC has indeed increased. Proving that a reduced supply of Bitcoin can trigger an increase in prices.
As mentioned at the beginning, the halving event occurs every 210,000 blocks. Historical data shows there are three phases in a halving cycle. And interestingly, this cycle has always repeated itself in the last three halving events.
Parabolic uptrend (prices are strengthening)
Large drawdown (prices fall)
Consolidation (consolidation price)
Fase Parabolic Uptrend
After the halving event, Bitcoin's initial 70,000 blocks will be in a parabolic uptrend phase. In this phase, the Bitcoin price is in a strengthening trend. The strengthening was attributed to the reduced supply of Bitcoin.
Along with the increase in BTC prices after reduced supply, more and more investors will take action to take advantage of the momentum. At the same time, the reduced supply of Bitcoin post the halving will make things difficult for less efficient miners. With reduced revenues while operational costs remain high, some have had to close operations.
As the number of miners decreases, the hash rate will also decrease. This means that only miners with a high level of efficiency can mine new blocks. As a result, they can gain greater market share and profits. At the same time, they also do not need to sell all their mining results, which ultimately reduces selling pressure on the market (selling pressure from miners is also reduced).
Fase Large Drawdown
As the price of Bitcoin increases, the profits of being a Bitcoin miner also increase. As a result, the Bitcoin mining industry has become very competitive because many people are interested in becoming miners. The tight competition for miners, makes the hash rate high again, and the decreasing amount of rewards means that the level of profit obtained by miners also decreases.
This increases selling pressure as miners need funds to cover operational costs. At the same time, buying action could decrease at any time because the BTC price is considered too high.
After a parabolic uptrend phase where Bitcoin consistently broke new all time highs, BTC price then corrected. The previous two cycles have seen a large drawdown phase when demand for BTC began to disappear, while the supply of BTC increased due to sell-offs from miners and investors who took profits.
Fase Consolidation
After experiencing a decline, in the last 70,000 blocks before the next halving, Bitcoin will look for a new equilibrium point. During this consolidation phase, BTC prices will move above the bottom of the bearish period, but below the all-time high of the bullish period. In this phase, the BTC price will move sideways until it finally enters the bullish phase at the next halving. In the previous two cycles, Bitcoin continued its sideways movement for 200 days (2015) and 100 days (2019).
Analisa Bitcoin Halving 2024
Now, let's think about the upcoming Bitcoin Halving in 2024. By examining the data and trends from previous Halvings, we can make some hypotheses about what might happen.
The twitter account @therationalroot conducted an on-chain analysis and found that on April 6, 2023, the process towards the fourth halving had reached 73%. One important implication of the analysis is that BTC price has passed the macro bottom of each halving cycle.
In 2015, BTC's bottom level at that time was US$ 164, and four years later the bottom point was at US$ 3,184. If a similar cycle does not change, then in this phase, the level of US$ 15,945 on November 21 2022 will be BTC's bottom point.
The red line is the BTC bottoming point, while the blue line is the date the halving occurred. If you look at the graph above, after reaching the bottom point, the BTC price then strengthened. Not long after, BTC experienced a correction as seen in the green circle. Pattern-wise, the green circle is a correction period before the halving occurs, thus providing a promising buying opportunity. However, all of this is only historical data which cannot reflect future price movements.
Source: (https://twitter.com/therationalroot/status/1644010512261193736)
By considering the experience of previous Bitcoin halvings, we can formulate a hypothesis about what might happen in the 2024 Bitcoin halving.
Hypothesis 1: Bitcoin Price Increase - Based on history, it is likely that we will see an increase in Bitcoin prices near or after the 2024 Halving. This could be triggered by a combination of factors of a new decline in supply and increased demand.
Hypothesis 2: Increased Volatility - History also shows that Halvings are often followed by periods of high volatility in Bitcoin prices. Investors need to be alert to significant price fluctuations.
Hypothesis 3: Impact On Altcoins - Apart from Bitcoin, the Halving may also affect the cryptocurrency market as a whole. Altcoins (cryptocurrencies other than Bitcoin) can also experience significant price changes, especially if Bitcoin experiences a large price increase.
Hypothesis 4: Investor Interest - If the pattern from previous halvings continues, we can anticipate an increase in investor interest after the 2024 Bitcoin halving. This could mean increased demand pushing the price higher.
Hypothesis 5: Institutional Interest - One factor that may differentiate the 2024 halving is the greater impact of institutional interest. Since the 2016 halving, many large companies and financial institutions have started to take serious interest in Bitcoin. As we all know, in 2023, institutional interest in Bitcoin grows very rapidly, this could create stronger and more sustainable demand, which might strengthen the post-halving bitcoin price increase.
Footnotes
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