Bitcoin Halving Event 2024: Not With A Bang, But A Whimper

On April 20, 2024, at 10:09 a.m., the fourth bitcoin halving took place. While some hard-bitten enthusiasts may have stayed up late or woken up early to watch the bitcoin block tick over 840,000, the halving itself is, at least initially, a non-event for most investors. The immediate impact of the halving is felt primarily by bitcoin miners, who see their block rewards cut in half, affecting their profitability and potentially leading to changes in the cryptocurrency mining industry.

As the rate at which new bitcoins enter circulation is reduced by 50%, the asset’s scarcity increases. This built-in deflationary mechanism creates a potential long-term upward pressure on bitcoin’s price. However, the relationship between halving events and price appreciation is not always straightforward and can be influenced by various market factors.

“Bitcoin trading volume generally sees the most significant increase in the 60 days prior to halvings, as interest builds and prices gain momentum,” Megan Stals, a market analyst at trading platform Stake, tells Forbes Advisor.

“This has happened again, with data from crypto exchanges showing a notable increase in volume in March when compared to February, as investors seek more exposure.”

On April 12, one week out from the halving event, one BTC was worth $94,768.53 Canadian dollars. As of April 22, a few days after the event, the price was holding slightly lower at $88,320.94 CAD.

However, Stals also points out the challenges miners face, particularly smaller operations, in the aftermath of the halving.

“Miners face a profitability squeeze (after the halving) event, due to the increased compute power and energy needed to mint new coins,” Stals says.

“Larger miners should have the resources to invest in new hardware and find more efficient energy sources, but each halving event makes it more difficult for smaller miners to stay in business.”

Despite the increased difficulty for miners, Stals notes that market dynamics play a crucial role in miner profitability. Higher bitcoin prices could help offset some of the extra mining costs in the short term. However, she adds that “investment in new hardware and finding efficient energy sources is key for their long-term success”.

Stals cites another potential tailwind for the recent halving event: the approval of 11 spot bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) in January. These ETFs have made it easier for investors to gain exposure to bitcoin without the need to navigate cryptocurrency exchanges in the U.S. Of course, Canadians have had access to bitcoin ETFs since 2021.

“Bitcoin ETFs have proven more popular with older investors on Stake, particularly those aged 45 and above,” she says.

“…While younger investors may already have direct exposure to bitcoin through cryptocurrency exchanges, these ETFs offer a solution to older investors who are interested in the space but are unwilling to deal with crypto exchanges and the intricacies of private keys and wallets.”

However, Stals says that bitcoin is sensitive to higher interest rates, so investors must also take this into account.

“There are still concerns that the U.S. has not yet successfully tamed inflation, and traders have begun reducing their expectations for rate cuts in 2024,” she says.

Consumer Price Index data out of the U.S. for April was higher than expected, with inflation for the past 12 months sitting at 3.8%, dampening expectations that any interest rate cuts would come into effect in the first half of the year. Crypto markets were red on the day of the news. For Canadian investors, inflation ticked up slightly to 2.9% in March compared to 2.8% in February–a full percentage point lower than in the U.S.

Now that the bitcoin halving event is over, investors are eager to see how it will affect the cryptocurrency’s price and market dynamics in the coming weeks and months. Historical data suggests that the path to new all-time highs won’t be straightforward.

“While bitcoin’s price has historically risen before and after each halving event, it has not always been a straight line up. Following previous halvings, prices have often pulled back before reaching a new peak around 220 and 240 days later,” Stals says.

“The halving is often portrayed as a short-term event, but it can take several months to see the full effect.”

One positive sign for bitcoin’s short-term price action is the recent net inflow into bitcoin ETFs, indicating that institutional investors are more likely to be buyers than sellers at this stage. However, Stals adds that “investors should keep a close eye on trading activity, as any large one-off sales made by whales could negatively impact short term prices and sentiment”.

As the market adjusts to the new supply dynamics and miners adapt to the reduced block rewards, investors should expect heightened volatility in the coming weeks and months. This volatility can present both opportunities and risks for those looking to gain exposure to bitcoin.

While the market finds its new equilibrium, Stals suggests potential investors to be prepared for this volatility with a well-thought-out investment strategy that manages risk through proper levels of exposure and maintains a long-term perspective on the asset’s potential.

It’s worth examining the outcomes of previous halvings to gain insight into potential future trends.

According to the latest Crypto-Asset Survey from the Ontario Securities Commission released in November 2023 and surveying over 2,300 Canadians, fewer of them hold cryptocurrency than ever–with 10% of respondents invested in cryptocurrency in 2023, compared to 13% only a year earlier and more of those Canadians who are invested in crypto expressing regret over doing so: 77% in 2023 compared to 68% in 2022.

Lower cryptocurrency adoption means that this recent bitcoin halving will affect fewer Canadians.

However, Stals also says the introduction of bitcoin ETFs in the U.S. markets has also made it easier for a broader audience to gain exposure to the cryptocurrency, further amplifying the halving’s potential impact.

However, she adds, ” While these products can be more accessible than buying crypto directly, they are equally as volatile as the crypto assets themselves.”

Looking back at previous halving events, the bitcoin market has experienced significant price appreciation in the months following each halving. After the first halving in November 2012, bitcoin’s price rose from around $11 USD to a peak of 1,100 USD in November 2013. Similarly, following the second halving in July 2016, the price increased from approximately $650 USD to nearly $20,000 USD by December 2017. The third halving saw BTC hit over $69,000 USD in the following year.

While past performance does not guarantee future results, these historical precedents suggest that the reduced supply of new bitcoins entering circulation after a halving can lead to increased scarcity and, consequently, higher prices. However, it’s crucial to note that the bitcoin market has matured significantly since the previous halvings, with increased institutional participation, regulatory scrutiny, and overall mainstream adoption.

As a result, the outcome of the current halving may not precisely mirror those of the past, and investors should remain vigilant in monitoring market developments and adapting their strategies accordingly.

With the halving event in the rearview mirror, many bitcoin enthusiasts and investors are already looking ahead to the next BTC milestone. The bitcoin halving is programmed to occur every 210,000 blocks, roughly once every four years. Given this schedule, the next halving event is expected to occur in 2028.

As each halving event reduces the block reward by half, the supply of new bitcoins entering circulation will continue to decrease over time. This built-in scarcity mechanism is designed to make bitcoin increasingly scarce, which, in theory, should lead to higher prices as demand grows while supply diminishes.

However, the relationship between halving events and bitcoin’s price is complicated. While significant price increases have followed previous halvings, the bitcoin market is subject to various factors, including regulatory changes, macroeconomic conditions, and increased levels of adoption, particularly following the approval of the ETFs in the U.S.

As the bitcoin network matures and adapts, it’s natural to wonder how long the halving process will continue. The answer lies in the coin’s programming. bitcoin’s pseudonymous creator, Satoshi Nakamoto, set a hard cap of 21 million bitcoins for mining. With each halving, the rate at which new bitcoins are created slows down, and the final bitcoin is expected to be mined around the year 2140.

This gradual reduction in supply is intended to make bitcoin more and more scarce over time, potentially driving up its value as demand increases. However, it’s crucial to remember that the cryptocurrency market is highly speculative and that past performance does not guarantee future results.

While the future is always uncertain, one thing is clear: the bitcoin halving will continue to be a defining event in the cryptocurrency’s journey, shaping its supply dynamics and influencing its value proposition for years to come.