How Halving Affects Bitcoin Price
Date: 2024-07-31 Author: Gabriel Deangelo Categories: CRYPTO PAYMENTS
Bitcoin is known for its cyclicality, which is an important characteristic of the crypto market. Throughout its history, this cryptocurrency has gone through four market cycles, each of which included periods of significant growth and decline. An important event that starts a new cycle is the Bitcoin halving.
What is Halving
Halving (from the English "halving" - "halving") is a process embedded in the Bitcoin code, in which the reward for miners for adding a new block to the blockchain is cut in half. Halvings occur approximately every four years or after every 210,000 new blocks. The first halving occurred in 2012, reducing the reward from 50 to 25 bitcoins. Subsequent halvings in 2016, 2020, and 2024 reduced the reward to 12.5, 6.25, and 3.125 bitcoins, respectively.
July 29, 2024, marks 100 days since the last Bitcoin halving, which took place in April 2024. Historically, each halving has been the beginning of a new market cycle, including bull and bear market phases. Analysts at Glassnode believe that the current cycle may play out similarly to previous ones.
While market cycles rarely repeat themselves exactly, the current correction in Q2 2024 is reminiscent of events in past cycles.
Current Situation Analysis
"The 23% drawdown seen in the first half of 2024 is significantly smaller than the drawdowns that ended previous growth cycles, indicating that the current cycle may continue," Glassnode analysts note.
Historical data shows that Bitcoin often moves sideways in the months following a halving, as it did from April to July 2024. However, statistically, Bitcoin's price usually rises significantly in the 12 months following a halving. After the first halving, the price increased by over 1,000%, after the second - by 200%, and after the third - by 600%.
With each halving, Bitcoin becomes more scarce as miners receive half as many new coins. This supply shortage has a significant impact on the market.
Halving Impact on Scarcity
"Today marks exactly 100 days since the Bitcoin halving on April 20. Markets typically have a short memory, but the supply shortage caused by the halving should be starting to show up now," says Andre Dragos, head of research at ETC Group. He calculates that the impact of the supply shortage becomes statistically significant 100 days after the halving, peaks around day 400, and then gradually tapers off around day 500.
Glassnode notes that Bitcoin's current rally has yet to match the growth rates seen in previous cycles. For example, the November 2022 cycle saw the price rise nearly four times from its lows. Past cycles saw increases of 100x and 20x, respectively.
Historical data and current trends suggest that halvings continue to play a key role in determining Bitcoin market cycles. Supply shortages and historical growth patterns suggest that Bitcoin may continue to rise in the current cycle. However, as always, investors should be aware that the cryptocurrency market remains highly volatile and subject to significant changes.
