Why Bitcoin's Halving is Good for its Price
The process where Bitcoin’s supply is cut in half every four years, known as halving, has been a source of fascination and frustration among Bitcoin enthusiasts and traders alike. The last halving occurred on May 11, 2020, and in the year that followed, it generated a 559% increase in Bitcoin’s price. In 2016 this led to two big price rallies, one in early 2016 and another in late 2017, that saw prices go up 80% each time. Will we see another price rally next year? Will BTC’s price skyrocket after May 2024, when the next halving is expected?
What Is the Reward System?
Bitcoin’s blockchain functions like a register, a decentralized bank-like ledger that can't be tampered with. Miners are provided with a block reward; new Bitcoin units are awarded as an incentive for being the first at processing complex mathematical problems and creating a new transaction block. Creating an immutable record of these transactions is vital for bitcoin to work as intended. As part of the process, miners get rewards for following the rules and creating new BTC.
What is Bitcoin's Halving?
The halving, or “The halvening,” is a process that occurs roughly every four years in which the amount of Bitcoin the miners can win gets cut in half. Bitcoin’s anonymous creator, a.k.a Satoshi Nakamoto, designed this process to end once the cryptocurrency reaches 21 million units to maintain its scarcity and avoid inflation. The halving influences Bitcoin's price by decreasing the supply of new Bitcoins, which increases the demand and value. So far, Bitcoin has had three halvings in its entire history. The first one occurred in November 2012, and it fueled Bitcoin’s price from $2.54 to $1007 during the year prior and following the halving.
What Happens to Bitcoin's Price After the Halving?
After the second halving, although the impact was small initially, the market eventually responded, and the price increased over the year. Some argue that the increase was a delayed result of the halving. According to theory, when bitcoin's supply decreases, the demand will increase, pushing the price up. Looking at bitcoin's price 365 days after the second halving, we see it rose by 284% to $2,506 in just over a year. And this trend promises to repeat itself every halving. According to Tracy Levine, Head of Data Analytics and Decision Science at the Blockchain Chamber of Commerce, "Only three of the 64 total halvings scheduled to take place prior to 2140 have occurred. If the trend of higher highs and higher lows after a halving continues, the future price of Bitcoin should likewise continue to serve as an inflationary hedge against other representations of value that can be arbitrarily inflated."