Slightly after midnight (UK time) tonight, a once-every-four-year event on the bitcoin calendar is due to take place, as the world’s largest cryptocurrency performs its next ‘Halving’.
Proactive has provided a deep dive into the fundamentals of the Halving, but in essence, it’s an algorithmic event programmed into the Bitcoin network that cuts the reward for mining new blocks in half.
This event occurs approximately every four years (every 210,000 blocks, to be precise) and acts as a disinflationary measure.
So, how has bitcoin historically responded to these Halving events?
In the 2012 Halving, bitcoin’s price increased 250% in the following 100 days and 8,000% in the following 12 months.
In 2016, the price fell 8% in 100 days and increased 284% in a year. In 2020, those same periods saw bitcoin gain 870% and 1,200% respectively.
There is no objective pricing trend to be gleaned from these figures, implying the Halving does not necessarily impact bitcoin’s price in the near and mid terms.
Although the price has steadily gone up over the years, this has far more to do with mainstream adoption and popularity than the technical Halving events every four years.
This was highlighted by Malcolm Palle, founder and executive chairman of Aquis-listed Web3 investor Coinsilium.
A seminal moment
“In previous cycles the impact of the halving on the market was never instant, and I don’t expect any difference on this occasion,” Palle told Proactive. “That said, the halving has always created a very positive set up for the beginning of the next bull phase and that is something many in the sector are expecting to happen this time around as well.”
Despite not expecting an immediate price pump, Palle does consider the Halving event “a seminal moment and highly supportive of the long-term fundamentals and investment case for bitcoin”.
“In fact, given the launch of ETFs first in the US and now in Hong Kong, many are now calling for this next phase to be a crypto ‘supercycle’ and I confess I am also firmly in that camp as well!”
Palle is referring to the US Securities and Exchange Commission (SEC)’s January approval of 11 spot-Bitcoin exchange-traded funds offered by BlackRock (NYSE:BLK), VanEck, Fidelity, WisdomTree and other major asset managers.
In a short space of time, these ETF issuers have taken hold of around $53 billion worth of bitcoin. That’s over 4% of Bitcoin’s entire market capitalisation (going by Friday, 19 March figures).
This has been a remarkable tailwind for bitcoin and has helped the world’s largest cryptocurrency push over 50% higher year to date.
Mining shakeout
“The first to be impacted by the halving event will be the bitcoin miners who will now need to be twice as efficient just to stand still,” stated Palle.
It stands to reason that the miners will face a near-term supply shock; their daily bitcoin rewards will be slashed in half after all.
This is partially why publicly listed mining stocks have plummeted this year.
Nasdaq-listed Iris Energy, Riot Platforms (NASDAQ:RIOT) and Marathon Digital (NASDAQ:MARA) Holdings are all currently down by more than a third year to date.
In London, Argo Blockchain has lost two thirds of its value, while Toronto-listed HIVE Digital Technologies (TSX-V:HIVE, NASDAQ:HIVE) is also down by a third.
With competition among the bitcoin miners set to get more fierce after the Halving, there could be a shakeout as those less prepared for the Halving fail to keep pace.
Those that can weather the storm, meanwhile, could be in a great position to benefit from the next supercycle.
“Likely most of the larger miners will have already prepared for this event and will have recalibrated their economic models to ensure their operations can withstand the instant supply shock,” said Palle.
One thing is for sure: The state of the bitcoin and bitcoin mining markets will look very different in a year’s time.
Bitcoin was swapping for $64,930 at the time of writing.