The second half of 2022 saw the cryptocurrency market fall from great heights, losing over $2 trillion after a series of bankruptcies – including the downfall of FTX, one of the largest crypto exchanges – coin crashes and scandals led to the onset of a new crypto winter. However, after months of continuous decline, things appear to have taken a turn for the better in 2023. Bitcoin, the undisputable leader of the crypto market, has been on an upward trend, growing in value by more than 80% since the beginning of the year. Bitcoin has recently surpassed the $30,000 threshold for the first time since June 2022, while its rival Ether is nearing the $2,000 mark, proving that all is not lost.
This price jump has occurred in the wake of a banking crisis triggered by the collapse of Silicon Valley Bank and several other lenders, which is likely to result in tighter credit conditions. The expectation that the Federal Reserve might cut interest rates this year also seems to play a role in the recent price increase. But apart from tensions in the banking industry and investors’ sentiment, there’s another factor that might influence Bitcoin’s trajectory and the evolution of the crypto market in the months to come: the impending Bitcoin halving.
Many expect the price rally to continue in the months leading up to the next halving event, fueling hopes that a new bull run might be just around the corner. This is more than wishful thinking since there seems to be a correlation between Bitcoin halving and bullish price trends, as we’ve come to learn over the years.
With crypto being such a novel and highly volatile asset class, suffering the influence of many external elements, there’s no solid basis for making price predictions. However, halving is one of the few factors that can serve as an indicator of future price performance to some extent, which is why a lot of analysts are taking a special interest in this event.
What is Bitcoin halving?
Before we start explaining how halving could potentially influence the Bitcoin price, we first have to clarify what a halving event is. To put it simply, halving is a technical feature that has been embedded into Bitcoin’s protocol in order to control the release of new coins into the market. By design, Bitcoin has a finite total supply of 21 million coins which are gradually made available to users through mining. Bitcoin miners will be able to earn block rewards until that limit is reached, after which no new coins will be generated. So far, approximately 19 million Bitcoins have entered circulation, which leaves less than 2 million to be mined.
With each halving event, the reward for mining Bitcoin is cut in half. This periodical reduction which takes place once every 210,000 blocks, or roughly once every four years, and regulates the distribution of new coins, helps maintain scarcity and ensures a healthy balance between supply and demand. Thus, the purpose is to drive prices up and preserve Bitcoin’s value.
Back in 2009, when Bitcoin was launched, the reward for each mined block was 50 BTC. Over Bitcoin’s 14-year history, halving gradually reduced these fees, and at present, the reward network participants receive for successfully mining new blocks is 6.25 bitcoins (BTC). After the next halving, which is expected to occur around May or April 2024, the reward is going to be slashed to 3.125. Halving will continue until mining rewards are reduced to zero. While the date for the last halving event remains unknown, analysts have calculated that all mining will cease by 2140, so there’s still a long way to go for Bitcoin miners.
Now that we know how Bitcoin halving works, let’s take a look at its history and how it connects with Bitcoin price movements. The first halving event happened on the 28th of November 2012 and coincided with a price jump of 384%. At the time, Bitcoin wasn’t worth much, so the increase translated into a trading value of $12.35 from $2.55.
The second halving event which took place in July 2016 had a similar effect, leading Bitcoin to experience a price increase of 142% in the span of 12 months prior to halving. After halving, Bitcoin reached a new all-time high of over $19,000 in December 2017.
Bitcoin last underwent a halving event in May 2020. In the year leading up to the event, the Bitcoin price rose by 19%, with the coin reaching a value of $8,568. Approximately one year and a half later, in November 2021, Bitcoin achieved a record high of over $67,000.
These repetitive trends strengthened analysts’ belief that investors have a tendency to accumulate Bitcoin in the months prior to halving, although it’s not exactly clear when this starts to happen or how it translates into profits afterwards. However, estimates reveal that the accumulation periods before halving events last at least 500 days. This might be a classic case of buying the dip strategy, which involves purchasing assets when prices have declined in the hope that they might bounce back in the future and lead to large returns.
Assuming that Bitcoin hit rock bottom in November 2022, when the price plummeted under $16,000, and taking into account that the next halving event is one year away, Bitcoin is already on its way to recovery if history were to repeat itself. And if Bitcoin recovers, it’s going to drive the entire market up, meaning that the next bull market is on the horizon. This theory is also supported by Bitcoin’s rally starting in 2023 and the recent price jump over the $30,000 mark.
Obviously, we shouldn’t jump to conclusions just yet, as the market tends to be full of unexpected surprises, but traders and investors should definitely keep an eye on price trends as we’re inching closer to the next halving. Who knows, 2024 might end up being the best year yet for Bitcoin & Co.