by CryptoJelleNL
It’s April, which means the first quarter of 2024 is behind us, and it’s been nearly 160 days since I shared my thoughts on whether we were at the peak of a bear market rally, or the start of a new bull market.
In that article, I discussed two main reasons why I expected a new bull cycle: the potential approval of spot Bitcoin ETF and the corresponding demand that would likely hit the market, and the Bitcoin halving event, estimated to take place somewhere in April 2024. Fast-forward to the present day, and the crypto world has changed significantly. Gensler & co approved the spot Bitcoin ETFs for trading – 12 billion dollars of net inflows hitting the market as a result – and Bitcoin broke records by setting a new all-time high before the halving event took place.
All things considered, the bull cycle is off to an incredibly strong start, even though my second reason for being bullish back then has not even played out yet. At the time of writing, the Bitcoin halving event is roughly 16 days away – which means a new increase in Bitcoin scarcity is just moments away.
In today’s article, we dive deeper into the Bitcoin halving and what it means for the market.
What is the Bitcoin halving event?
The halving event is one of the biggest events in a bitcoin market cycle – but before we explain what it is, we should understand how a bitcoin comes to life.
Bitcoins are issued as block rewards – a reward paid to “miners” for keeping the network secure and operational. As it stands, miners are rewarded with 6.25 bitcoin per successfully mined block. With roughly 144 blocks being mined per day, that means roughly 900 “new” bitcoins are issued daily.
900 new bitcoins per day adds up over time, and there can only be so many bitcoins (21 million, to be exact). This is where Bitcoin halving events come into play. Satoshi Nakamoto - the pseudonymous inventor of Bitcoin - designed the halving event to reduce the block reward by 50% once every 210,000 blocks (roughly every four years) until the complete 21 million bitcoins have been mined.
In other words, Nakamoto designed Bitcoin in such a way that the amount of new bitcoins that are issued per day is cut in half, once every ±4 years, reducing the emission of new supply as Bitcoin matures.
This set-in-stone emissions schedule and fixed supply is what makes Bitcoin unique – especially in a world where traditional currency can be artificially created at a moment's notice.
What does the halving event mean for Bitcoin?
Historically, the Bitcoin halving event is seen as an important event. As the chart below shows, the halving event has historically marked a turning point in bitcoin cycles, leading to the continuation, and more importantly, the acceleration of the bull market.
This can be attributed to multiple factors, the most obvious one being the reduction of bitcoin emissions tipping the scales of supply and demand. Assuming demand stays equal, a reduction of supply generally means the price moves higher.
On top of that - the halving event brings swaths of new attention to the market. News outlets all over the world tend to report on the halving event, while also writing on the historical effects of the halving, potentially bringing new attention and attracting new investors – further boosting the effect of the halving.
Finally, because the halving event has historically led to price appreciation, the advent of a new halving event now leads to a more bullish sentiment, in anticipation of the outcome being the same. This leads to more demand for Bitcoin, which ends up fulfilling the expectations of higher prices.
All in all, the association of bitcoins halving events with higher prices has resulted in a flywheel-like demand booster, all while the emission of new supply is cut in half.
How will the upcoming halving affect BTC’s price?
To properly answer this question – it is important to look at both sides of the coin. The halving only influences the supply side of the scale, and what happens to the demand side decides the outcome.
While it is impossible to say for certain, I’m quite confident the halving event will lead to the same outcome once more: increased demand, and higher prices. Each cycle, a bunch of self-proclaimed contrarian thinkers try to convince you that this time is actually different, but history has shown us that it most likely is not so different at all.
On top of that, the recent approval of Bitcoin ETFs has resulted in a new segment of market participants that previously were unable to partake in the bull market frenzies: U.S. pensioners and institutions. In the 81 trading days since the release of the Bitcoin ETFs, these new participants bought a whopping 217,000 dollars in bitcoins through the ETFs, averaging 2600 bitcoins a day - more than 2.5 times as much as the current emission of BTC.
Based on what they’ve shown us so far, I expect their participation to only further fuel the historical effect of the bitcoin halving. All in all, I see plenty of reason to believe this halving will bring a similar result as the previous times: bull market acceleration, and higher prices.
This time is no different. Good luck.
Author's Disclaimer: This article has been written for informational purposes only. It should not be construed as trading or investment advice in any shape or form.
Editor's note:
While historical data shows that Bitcoin prices typically rise following halving events, it's important to note that such information pertains to past trends and does not constitute a guarantee of future performance. WOO does not predict future price movements. Price trends will depend on a range of factors, including but not limited to BTC halving events, market demand, and other relevant circumstances.
CryptoJelleNL provides insights into the cryptocurrency industry. He has been actively participating in financial markets for over 5 years, primarily focusing on long-term investments in both the stock market and crypto. While he watches the returns of those investments roll in, he writes articles for multiple platforms. From now on, he will be contributing his insights for WOO as well.
Check out his twitter: twitter.com/cryptojellenl
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