Bitcoin Halving 2024: this time is different
The Bitcoin Halving is a hard-coded rule in the Bitcoin Core software that automatically reduces the daily mining rewards by 50% every 210,000 blocks mined (approximately ~4 years).
Mining is important to bitcoin because it’s a process that validates Bitcoin transactions and provides security for the Bitcoin Blockchain Network.
This year, starting with Block #840,000, the block subsidy (aka – coinbase reward) for the miner who successfully mines a block will be rewarded 3.125 BTC which is half of what they are used to earning (6.25 BTC) per each mined block every ~10 minutes. .
~450 newly mined BTC will be added creating ~13,500 new bitcoins per month and ~164,250 Bitcoin added to the Total Bitcoin Supply each year for the next 4 years until the next halving. This fixed schedule continues through 2140 as a way to pre-determine a fixed inflation schedule of the asset.
Bitcoin’s Halving History
Every 4 years an epoch (cycle) completes and the reward to miners for validating transactions keeping the network secure is reduced by half. A quick look at previous halving epochs can signal what could happen with regards to price action:
2012 Halving Epoch (11/28/2012)
- Price on Halving Day: $12.35
- New BTC Per Block (pre-halving): 50 BTC per block
- New BTC Per Block (post-halving): 25 BTC per block
- Price 150 Days Post Halving: $127.00
- Change between next halving: 52x INCREASE
2016 Halving Epoch (7/9/2016)
- Price on Halving Day: $650.63
- New BTC Per Block (pre-halving): 25 BTC per block
- New BTC Per Block (post-halving): 12.5 BTC per block
- Price 150 DaysPost Halving: $758.81
- Change between next halving: 13.5x INCREASE
2020 Halving (5/11/2020)
- Price on Halving Day: $8821.42
- New BTC Per Block (pre-halving): 12.5 BTC per block
- New BTC Per Block (post-halving): 6.25 BTC per block
- Price 150 Days Later: $10,943.00
- Change between next halving: 8x INCREASE (est. $72K USD/BTC)
Bitcoin’s price is a series of higher highs and higher lows than previous 4 year cycles. No other asset has the same reliable scarcity of Bitcoin.
“But this time it’s Different!”
We’ve heard this for years. Every previous cycle has been described, at the time, as being different. Looking at historical data, it’s actually been the same. High highs, low lows, accumulation, capitulation and then reaccumulation. Substitute each 4 year cycle’s unique Black Swan event(s) and you’re still left with roughly the same old predictable price action.
In the past three 4-year cycles, Bitcoin has been relatively predictable.
- Year 1 (3 months): Sideways pricing
- Year 1-2: Bull Market
- Year 3: Bear
- Year 4: Recovery w/ before next Bull + pre-halving selloff
The Bitcoin market has grown over the years amongst a small number of market participants with limited capital to support mines selling off Bitcoin reserves to cover costs.
This time, however, it is different. We’ve never had Wall Street to absorb the supply selloffs.
ETFs hold ~180k Bitcoin in their reserves ($55B USD) and are trading ~$4 Billion per day and gobbling up ~$200M average daily supply in the weeks before the halving which forces upward pressure on the price.
To put this in perspective, Only 55k new BTC has been produced by Miners since the launch of the ETFs in January 2024. ETFs have slurped up 3x the number of BTC mined and the amount of newly produced Bitcoin will be cut in half thanks to the coming halving in April 2024.
When the amount of BTC produced decreases by 50%, the ETFs may be forced to bid up the price of $BTC to incentivize liquidity from long term holders (LTH).
Bitcoin’s Fixed Supply Cap
Bitcoin is the only asset in history with fixed supply. A hard cap 21,000,000 Bitcoin is the absolute limit that can ever be produced.
Bitcoin is not elastic. Consider another commodity with limited supply, GOLD. When the price of gold increases, more companies mine gold to meet demand. They may deploy historically unprofitable methods when demand surges. Once price has normalized, those methods are shut down and remain dormant until the next market surge.
There’s theoretically an unlimited supply of gold to be mined.
As a long term store of value, relative scarcity of gold is a riskier value proposition compared to the absolute, immutable scarcity of Bitcoin.
An equilibrium between supply, demand and price is normal for gold and other ‘goods’. Bitcoin is different.
Bitcoin doesn’t have supply uncertainty. It only has demand and price due to the halving controlling supply. Miners can’t just produce more supply to stabilize prices like you see with oil and gold markets.
Over time, the “Veblen effect” could take over due to the desirability of a good increase with its price as Bitcoin comes to parity with Gold. Parity occurs at ~$500,000 per Bitcoin would surely up the crypto asset’s status as the ‘new gold.’
Bitcoin is still poised as the best money ever invented. Remember that all money is invented, and only fiat (USD) is forced money by government decree. Here’s how Bitcoin stacks up against other money:
Bitcoin Halving Metrics to Watch
The 2024 spot ETF approval created a more balanced market which should limit downside volatility as time goes on and eventually lead the charge for a parabolic price increase.
ETFs are likely to continue to see increased inflows as new Authorized Participants order up Bitcoin. On April 4, 2024 BlackRock added Goldman Sachs, Citigroup, UBS, Citadel Securities and ABN AMRO to their list of APs who can place orders to buy and sell Bitcoin.
Bullish? We think so. It’s hard to imagine a case where it’s not with the simplistic viewpoint that more demand (ETFs) + reduced supply (halving) = price go up.
There are several themes and metrics to watch post-Halving:
- Long-term holders realizing gains.
- Active vs. Dormant Supply: As coins move from dormants wallets to exchanges, there is considerable anticipation in selling. The older the coin that’s sold, the greater the signal in a market top or bottom. You can watch HODL waves, coin destroyed days, and Exchange inflow/outflow volume metrics.
- Mining Equipment or Alternative Energy Upgrades.
- Imagine you’re a miner. After the halving, after the halving your costs remain constant but your payout for verifying transactions gets halved. Inefficient miners may need to sell bitcoin held in reserves to cover immediate costs unless the price goes up in the mid-long term. (coinbase report)
- Short term activity: Short term holder trading signals an increase in trading interest from a macro view building momentum or consolidation. Metrics to watch: RHODL and short vs. long SOPR.
- Imagine you’re a miner. After the halving, after the halving your costs remain constant but your payout for verifying transactions gets halved. Inefficient miners may need to sell bitcoin held in reserves to cover immediate costs unless the price goes up in the mid-long term. (coinbase report)
- The ‘ripple effect’ of media coverage and hype drive new entrants into the market.
- Increased pressure on the FED to lower interest rates from ~5%, investors (speculators) may reallocate funds away from treasuries to more profitable investments with higher upside when interest rates begin to decline.
- Increased regulation, global adoption, FOMO, and institutional interest will also be factors we’re paying attention to.
The Bitcoin Halving is a highly publicized, anti-inflation feature of the best money ever invented. If history repeats itself, we’re coming into a bull market for the next 12-24 months.
It’s another step on the path to Bitcoin’s role in the future of money.
Adoption will continue to increase while those of us who are dollar cost averaging shrug off the highs and lows knowing we’re still a cycle or two away from the rest of the world realizing that the current financial system is designed to fail ahead of a global redistribution of wealth.