While digital currencies are dynamic by nature, few events garner as much attention and speculation as a Bitcoin halving.

Halvings occur approximately every four years as programmed events in the Bitcoin protocol. They serve a critical purpose: to curtail the total supply of Bitcoin and heighten its scarcity.

As we are just days away from the next halving event, understanding the impact of previous Bitcoin halvings and contemplating the potential future implications of this one is important for anyone investing in the cryptocurrency market. So join us as we look at Bitcoin’s history and past halving events to understand what lies ahead for the Bitcoin market after this month’s halving.

What is a Bitcoin Halving?

A Bitcoin halving is a pre-programmed event within the Bitcoin protocol itself. At the time of halving, the reward for Bitcoin miners (who validate transactions and secure the Bitcoin network) is reduced by 50%. This reduction in mining rewards aims to limit the total supply of Bitcoin, increase its scarcity, and ward off the possibility of inflation.

The halving process occurs after every 210,000 blocks are mined, which translates to a halving event roughly every four years.¹

The Bitcoin halving is a significant aspect of Bitcoin’s monetary policy, designed to mimic the scarcity of precious metals like gold. By reducing the rate of new Bitcoin issuance, it aims to create a digital equivalent of a scarce asset. This scarcity is expected to drive up demand and potentially increase Bitcoin’s value over time.

Overall, the Bitcoin halving is a key event in the cryptocurrency market, influencing supply dynamics and investor sentiment. The halvings are amongst the fundamental principles of Bitcoin’s design and its role as a decentralized digital currency.²

The History of Bitcoin Halving Events

Bitcoin halving events mark important milestones for the digital coin, including both growing value and demand for the pioneering digital currency.

The first Bitcoin halving occurred in November 2012, and saw the reward for miners slashed from 50 to 25 BTC per block. Despite initial concerns, this halving was followed by a significant bull run. Bitcoin saw its first major price surge, going from a modest $12 to over $1,000 by 2013, teaching the community the bullish nature of halving events. This meteoric rise underscored the profound impact of the halving on market dynamics and investor sentiment.

Fast forward to July 2016, when Bitcoin experienced its second halving, reducing the mining reward from 25 to 12.5 BTC per block. This time, the event was met with fervent anticipation and speculation as investors sought to capitalize on the impending scarcity-driven dynamics.

As happened after the first halving, Bitcoin’s price made another steep climb after the second halving, going from $640 to nearly $20,000 in 2017. The correlation between the halving event and this surge in value reinforced the narrative of scarcity-driven demand and investor optimism.

In May 2020, Bitcoin underwent its third halving, further reducing the mining reward from 12.5 to 6.25 BTC per block. This event unfolded against the backdrop of heightened institutional interest and mainstream adoption, fueling speculation about Bitcoin’s role as a hedge against economic uncertainty. Bitcoin’s price surged once again after this halving, rising from $8,605 to over $69,000 in 2021.³

While correlation does not necessarily imply causation, the historical data surrounding Bitcoin’s halving events suggests a clear pattern of price increases following each reduction in mining rewards. This correlation underscores the fundamental principles of supply and demand dynamics, as well as the scarcity-driven narrative that underpins Bitcoin’s value proposition.⁴

The next halving, slated for later this month, will further decrease mining rewards to around 3.125 BTC per block. And it is the historical trends after halvings and the potential implications for Bitcoin’s future trajectory that have made this upcoming event so keenly anticipated.

Anticipating the Impact of the 2024 Halving

The upcoming mining reduction to 3.125 BTC per block represents a pivotal moment for Bitcoin. This fourth halving occurs amidst significant institutional interest, indicating a new phase in Bitcoin’s evolution and integration into the global economy.5 So, what are the potential implications of a halving now?

Foremost among the anticipated effects of the 2024 halving is the prospect of increased scarcity and potential upward pressure on prices. With fewer new Bitcoins entering circulation, the supply-demand dynamics that have historically underpinned Bitcoin’s value proposition are expected to intensify. This scarcity-driven narrative has long captivated the imaginations of investors, with many viewing Bitcoin as a digital equivalent to gold—a finite and coveted asset.6 Bloomberg Intelligence and Matrixport have estimated that this halving could spur a value appreciation of at least 81%.7

Beyond the realm of price speculation, the 2024 halving is also expected to serve as a catalyst for mining innovation and community engagement within the Bitcoin ecosystem. With reduced mining rewards incentivizing miners to optimize energy consumption and increase hash power, the halving event is poised to spur technological advancements and foster a sense of collective purpose within the mining community. This renewed focus on innovation and sustainability bodes well for the long-term viability and resilience of the Bitcoin network.8

However, as with any significant market event, the 2024 halving has its risks and challenges. Short-term market volatility and speculative behaviour are valid concerns, with historical data suggesting that halving events can precipitate periods of heightened price fluctuations. It is imperative, therefore, for investors to have a measured perspective and approach the halving event with a degree of caution and long-term thinking.9

In navigating the complexities of the 2024 halving, informed decision-making and a keen awareness of historical trends and market dynamics will be paramount. While the halving event holds the promise of increased scarcity and potential price appreciation, investors must maintain a disciplined approach and resist the allure of short-term speculation. By doing so, they can position themselves to navigate the cryptocurrency market with confidence and clarity.

Investing in Cryptocurrency with ETFs

Deciding which cryptocurrency to own and how much to allocate can be overwhelming for many investors.

Evolve’s Bitcoin ETF (EBIT ETF) is one of the world’s first Bitcoin ETFs. It provides investors with a simple and efficient way to access the price of physical Bitcoin through a secure investment solution. For more information on this fund, visit evolveetfs.com/ebit/.

Evolve’s Ether ETF (ETHR ETF) is the world’s first Ether ETF and offers a great way for investors to access the price of Ether through a secure investment solution. For more information on this fund, visit evolveetfs.com/ethr/.

For a more diversified cryptocurrency investment solution, the Evolve Cryptocurrencies ETF (ETC ETF) is Canada’s first multi-crypto ETF. ETC ETF is designed to be a one-ticket solution to cryptocurrency exposure. It is market cap weighted and rebalanced monthly. It currently holds Bitcoin (TSX: EBIT) and Ether (TSX: ETHR), but as regulators approve other crypto ETFs, they may be added as well. For more information on this fund, visit evolveetfs.com/etc/.

To stay updated with insights on investing in cryptocurrency and related investment products, sign up for our weekly newsletter here.

 

Sources

1. Hajric, V. & Pan, D., “What Is Bitcoin ‘Halving’ and Does It Push Up the Cryptocurrency’s Price?,” Bloomberg, March 6, 2024; https://www.bloomberg.com/news/articles/2024-03-06/what-is-bitcoin-halving-and-does-it-push-up-the-cryptocurrency-s-price
2. “What You Need to Know About the Bitcoin Halving,” Chainalysis, April 9, 2024; https://www.chainalysis.com/blog/bitcoin-halving-2024/
3. “CMC Bitcoin Halving 2024,” CoinMarketCap, n.d.; https://coinmarketcap.com/events/bitcoin-halving/
4. “The Bitcoin Halving: Everything you need to know,” Coinbase, n.d.; https://www.coinbase.com/bitcoin-halving
5. Hajric, V. & Pan, D., “What Is Bitcoin ‘Halving’ and Does It Push Up the Cryptocurrency’s Price?,” Bloomberg, March 6, 2024; https://www.bloomberg.com/news/articles/2024-03-06/what-is-bitcoin-halving-and-does-it-push-up-the-cryptocurrency-s-price
6. “The Bitcoin Halving: Everything you need to know,” Coinbase, n.d.; https://www.coinbase.com/bitcoin-halving
7. Hajric, V. & Pan, D., “What Is Bitcoin ‘Halving’ and Does It Push Up the Cryptocurrency’s Price?,” Bloomberg, March 6, 2024; https://www.bloomberg.com/news/articles/2024-03-06/what-is-bitcoin-halving-and-does-it-push-up-the-cryptocurrency-s-price
8. “The Bitcoin Halving: Everything you need to know,” Coinbase, n.d.; https://www.coinbase.com/bitcoin-halving
9. “What You Need to Know About the Bitcoin Halving,” Chainalysis, April 9, 2024; https://www.chainalysis.com/blog/bitcoin-halving-2024/

Header Image Source: Getty Images Credit CreativaImages

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.
Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.