Every four years, the Bitcoin network experiences a halving. How will it affect the price of the first cryptocurrency this year and what should we prepare for in the long run?
Halving is the halving of the reward for mining a new block in the Bitcoin network, programmed by its founder Satoshi Nakamoto. The halving occurs automatically after the next 210 000 blocks are added – approximately once every four years. In total, the Bitcoin network provides for 32 halves, three of which have already taken place: in 2012, 2016, and 2020.
Halving helps to control the rate of creation of new coins and curb inflation in the network. As bitcoin issuance slows down, the supply on the market decreases, while demand remains high. This provokes an increase in the price of the first cryptocurrency.
The next halving is expected shortly, around April 19 this year. After mining 840,000 blocks, the reward for miners will decrease from 6.25 to 3.12 BTC. To understand what might happen to the price of Bitcoin after the reward is reduced, let’s analyze the data from previous halving events.
Each halving gave bitcoin an impetus to reach a new price high, but this impetus gradually decreased. For example, after the first halving, BTC grew by 9,333% (from $12 to $1 132) in a year, but after the second halving, it grew by 2,913% (from $663 to $19 995), which is 70% less than the previous result. The growth of the bitcoin price after the third “decrease” amounted to 680% (from $8 837 to $68 899), which is also less than after the second.
Given this data, the next price impulse may also be about 70% less than the previous one. Thus, after this year’s halving, the price of Bitcoin may rise by a little over 180%.
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However, it is impossible to rely entirely on the analysis of previous periods and forecasts based on it this year: the current cycle is unfolding against the backdrop of unique events and is already different from precedents.
The 2024 halving will take place against the backdrop of a steady inflow of assets into the industry, as well as the growing involvement of institutional investors following the approval of spot BTC-ETFs in the United States. According to CoinGecko analysts, as of March 25, 2024, 4.2% of all mined bitcoins (823,900 BTC) were held by exchange-traded funds. These factors led to the fact that Bitcoin updated its all-time high for the first time in history even before halving: On March 14, its price reached $73,681.
An additional factor worth considering is the reduction in the US Federal Reserve’s base rate, which is expected in May or June 2024. The easing of monetary policy makes loans cheaper and the investment climate more favorable. Investors are investing in more risky assets, including cryptocurrencies, so this can also raise the price of bitcoin.
Despite the optimistic atmosphere and favorable related events, we should not expect Bitcoin’s growth to be rapid and start immediately after the halving. Historically, the rate of the first cryptocurrency went through a small correction at first. For example, after the 2016 halving, the price of Bitcoin dropped by 30% and started growing only 6-7 months later. In 2020, the rate also rose only 6 months later.
Currently, the correction is facilitated by profit-taking by long-term investors and miners, which, according to the analytical company 10x Research, will reach $5 billion. This looks realistic, as Bitcoin has already rewritten its historical high, and the percentage of profitable wallets has exceeded 90%. According to MOVO analysts, this will result in a 28-31% correction in the price of digital gold from the high in the range of $50 000 to $53 000. If history repeats itself, the price will remain at this level without significant fluctuations for about 5-6 months, after which it will start to grow. During the same period (approximately the beginning of autumn), we should expect an alt-season, i.e. a rapid increase in altcoin prices.
Analysts are optimistic about the long-term prospects for bitcoin prices. For example, experts from the analytical and investment company Bernstein predict that the first cryptocurrency will rise to $90,000 by the end of this year. Mark Yusko, CEO of Morgan Creek Capital Management, an asset management company, believes that in 2024 the price of Bitcoin will double and reach $150 000.
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