So far, 2024 has been the year of the Bitcoin ETF, with interest in new spot Bitcoin exchange-traded funds triggering a series of cryptocurrency rallies and the original crypto hitting a fresh high in March for the first time since November 2021. With the Bitcoin halving event now set to occur around April 20, many experts say this may only be the start of BTC’s parabolic growth.
Anticipation for the Bitcoin halving event is high, and leading cryptocurrency-focused platforms such as CoinGecko have even launched their own halving event countdown clocks as the big day looms.
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The date for the Bitcoin halving theoretically could be sooner if an aggressive rise in BTC’s price attracts more Bitcoin mining and accelerates the creation of new “blocks” on the BTC blockchain, but that doesn’t look likely as the price is down 2.1% over the past seven days. A block is a file storing 1 megabyte worth of Bitcoin transaction records.
Some investors expect the halving to take the world’s favorite digital currency to new heights over the months that follow. At least, that’s how Bitcoin has traditionally responded to the event, which occurs every four years. Following the last halving, Bitcoin’s value eventually rose to an excess of $69,000 in November 2021, an all-time high at that point, before it tumbled more than 70% amid a hefty market downturn.
Buoyed by record spot Bitcoin ETF inflows of more than $1 billion on March 12, the price of BTC soared into uncharted territory, surpassing the $73,000 mark one day later. Although some crypto investors are looking to the halving event to again push up crypto values, volatility is also a reason for caution. Also, there’s not necessarily any direct evidence that past halvings have spurred an increase in Bitcoin’s price, as other market conditions inevitably play a role.
But, looking at past market behavior, what’s the argument for the Bitcoin halving setting off a cryptocurrency rally? Let’s take a closer look at a rare piece of cyclical behavior within a famously volatile crypto ecosystem:
— How has Bitcoin halving led to volatility in the past?
— Will history repeat itself in this Bitcoin halving event?
— Finding answers in the stock-to-flow chart.
— How does Bitcoin’s halving impact the wider crypto market?
— How far can Bitcoin carry the crypto landscape?
How Has Bitcoin Halving Led to Volatility in the Past?
Bitcoin’s halving event is a relatively simple concept that’s a key driver of the cryptocurrency’s scarcity and complex underlying technology.
When a halving event occurs, it reduces the rate at which new Bitcoins are created by, you guessed it, half. This is a pre-programmed function within the coin’s technical framework and is an active deflationary measure that controls the circulation of the asset. A halving happens for every 210,000 blocks mined.
How could halving the rate at which Bitcoin is created lead to a crypto market rally? This is where it gets a little more technical.
Bitcoin is a cryptocurrency that’s built on a “proof of work” (PoW) algorithm. This means that the coin can be “mined” using computational power to verify BTC transactions, by solving complex equations to reach the required hash rate to confirm a transaction on a blockchain. The first miner to reach the required hash rate will then update the blockchain to verify the transaction and receive BTC as a reward.
When Bitcoin launched in 2009, 50 BTC were to be distributed to miners for their efforts. But these rewards were halved approximately every four years. At the next halving, rewards for each block mined will be cut from 6.25 BTC to 3.125 BTC.
This was a crucial consideration in the development of Bitcoin, which was created by the pseudonymous Satoshi Nakamoto to have a capped supply of 21 million. At press time, 19,673,868 Bitcoins were in circulation, meaning that they’re already close to reaching maximum supply.
However, because the distribution to miners will continue to be cut by 50% every four years on an ongoing basis, it likely won’t be until the year 2140 that we will see the 21 millionth Bitcoin mined.
It’s precisely this slowing supply that some experts say helped Bitcoin embark on parabolic price rallies throughout the months that have followed halving events. The cyclical nature of the underlying technology has provided a recurring trend for crypto investors to follow amid a more general theme of volatility throughout the crypto landscape.
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Will History Repeat Itself in This Bitcoin Halving Event?
The reason why the Bitcoin halving has taken center stage for investors, even in a year punctuated by the landmark Securities and Exchange Commission approval of a spot Bitcoin ETF, is that the months following a “halvening” have, without fail, culminated in a new all-time-high value for the cryptocurrency.
Following the 2012 halving event, for example, in which the BTC distributed to miners fell from 50 to 25, Bitcoin rallied in 2013 from a year-opening price of $13.30 to a brief, extraordinary peak of $1,238.
Likewise, after a halving event midway through 2016, Bitcoin began 2017 at a value of just under $1,000. By Dec. 16, 2017, BTC had attained a value of $19,345, which remained its all-time high until November 2021.
While there’s evidence that the scale of Bitcoin’s post-halving rallies has been falling as each halving event has occurred, they still hold opportunities for investors to see returns.
However, it’s important to note that every new peak in the wake of a halving event is typically followed by a “crypto winter,” which takes the form of an extended period where Bitcoin and other crypto assets shed the majority of their value, making the timing of investments crucial.
Finding Answers in the Stock-to-Flow Chart
To support Bitcoin’s historical performance in the wake of halving events, we can look at the asset’s stock-to-flow (S2F) chart, which maps out the BTC’s relative performance concerning its halving cycle.
Bitcoin’s cyclical peaks typically arrive when the coin is roughly 800 days away from its next halving event, placing it around the middle of its post-halving cycle.
Bitcoin’s consistency in following its stock-to-flow model has been remarkable considering how frenetic the crypto landscape can be, and even though correlations weakened in 2022, it’s worth considering the widespread economic headwinds that impacted the post-pandemic recovery, supply chains, geopolitical conflict and historically high inflation at the time.
With the S2F model highlighted above anticipating a peak in excess of $440,000 by May 2025, the prospect of history repeating itself is likely to be music to the ears of crypto enthusiasts.
With questions about whether such an astronomical rally is sustainable, especially with the impact of halving events arguably weakening, it’s certainly worth balancing Bitcoin’s stock-to-flow with a cautious mindset when charting the cryptocurrency’s prospects.
How Does Bitcoin’s Halving Impact the Wider Crypto Market?
While Bitcoin has often stolen the headlines, the cryptocurrency landscape is a rich and diverse place. Alternative cryptocurrencies, often known as altcoins, have been known to rally at impressive rates following Bitcoin halving as more money flows into the ecosystem.
Bitcoin’s market dominance stood at 52% at the end of March, which is a seismic share of an arena that features thousands of altcoins. This means that when BTC moves, altcoins generally move to remain in its orbit.
What’s curious is that while Bitcoin is trading at a high, the total cryptocurrency market capitalization is trailing its 2021 peak by nearly half a trillion dollars. This indicates that value can be found in altcoins as crypto investors seek to diversify their portfolios.
Virtually every other major altcoin by market capitalization has either followed Bitcoin to a new all-time-high value in 2024 or is approaching its old highs from November 2021. With this in mind, reputable and trustworthy cryptocurrency projects away from BTC could hold plenty of value for investors willing to explore their options.
Note that for Bitcoin miners themselves, the halving historically represented a hit to revenue, and the participation of miners was expected to decline as the profit from mining fell. Now, however, an increase in Bitcoin network fees paid to incentivize miners could compensate for the decrease in mining rewards, according to an April 5 report by Cointelegraph.
How Far Can Bitcoin Carry the Crypto Landscape?
Looking back at the history of total cryptocurrency market capitalization, the crypto landscape’s market cap topped out at just shy of $850 billion in early 2018, and at about $3 trillion in late 2021.
In light of high investor expectations and stronger levels of institutional adoption, the 48% total market share of Ether (ETH) and other altcoins could benefit from the BTC halving event due to fresh interest from investors and institutional players alike.
Many altcoins are highly functional, and crypto and blockchain technologies are rife with innovation, which could make an ongoing Bitcoin rally a great springboard for strong projects to find new markets.
As always, Bitcoin remains the catalyst for growth in the cryptocurrency landscape, but in a post-halving rally scenario, the wider ecosystem’s brightest players also would gain significant opportunity to shine.
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What the Bitcoin Halving Event Could Mean for Crypto Markets originally appeared on usnews.com
