Halving Bitcoin 2024
This event is the halving of Bitcoin. It occurs roughly every four years (every 1,460 days on average, to be exact) and has historically catalyzed the price to rise.
Halving is a planned reduction in the number of newly issued bitcoins miners receive for their work. This is initially programmed into the cryptocurrency's code to control inflation.
So, in the coming halving, the reward per block will be reduced from 6.25 BTC to 3.125 BTC, reducing the annual inflation rate from 1.7% to 0.8%.
So why is the price going up?
There are actually two main reasons for this phenomenon being considered. The first is directly related to the balance of supply and demand on a practical level. The leading suppliers of bitcoins on the market are miners, who need to cover the costs of maintaining operations by converting new bitcoins into fiat money.
And with every halving, there is less selling pressure, which, even if demand remains the same, contributes to price increases.
Ethereum cryptocurrency creator Vitalik Buterin, even before the first bitcoin halving, explained its significance this way:
"The world's gold reserves are limited, and with each gram mined, it becomes harder and harder to obtain the remaining gold. As a result of this limited supply, gold has retained the value of an international medium of exchange and accumulation for over six thousand years, and it is hoped that bitcoin will do the same."
The second biggest reason, but not the most important, is the "self-fulfilling" prophecy. If you convince everyone that the price should rise every 4 years, then investors start buying and selling the asset at exactly this frequency, creating an artificial bias in the balance of supply and demand in the market, only reinforcing the natural trend due to the decreasing inflow of new cryptocurrency to the market.
How profitable is this?
Judging by the historical data we have, investing in Bitcoin shortly before the halving has always been a winning strategy. After the first miner reward cut, the price rose from $11 to $1100, after the second cut from $600 to $20'000, and after the third cut from $3'000 to $69'000.
Most analysts and investors expect this pattern to continue in the future. Although, no one guarantees that the bitcoin rate will show such an impressive growth again.
What are the risks?
With coin, issuance declines having a smaller and smaller impact on relative selling pressure compared to daily trading volume, future halving events may be less significant.
Moreover, it may be next year that we will see the last halving event of any significance, as today, the daily bitcoin issuance is around 900 BTC, with a trading level of around 400'000 BTC at the same time (i.e. around 0.2%). Whereas in the future, all things being equal, trading volumes will continue to methodically increase on the back of increasing adoption, and changes in the inflow of new bitcoins to exchanges will not be as noticeable as before.
If in 2017, this change in issuance in absolute values took place from 3600 BTC to 1800 BTC per day, that is, from about 2.5% to 1.25% of the trading volume of that period, and in future halvings real changes will be already around hundredths of a per cent.
When will this happen?
No one knows the exact date because the block mining rate, although regularly adjusted by algorithms, is not constant. Tentatively, halving should happen in April-May 2024.
But it is worth noting right away that by the time the halving occurs; it is already reflected in the price due to investor expectations. Historically, bitcoin price growth begins about six months to a year before the halving, although the main growth does occur within a year to a year and a half after the halving.
The point is that just before the halving, demand for cryptocurrency already starts to exceed supply, and the price rises, provoking demand even more.
It is important to remember that many crypto market participants buy bitcoins before halving with the expectation of a high return on investment, but the behaviour of the crowd of low-skilled investors is poorly predictable. The notoriously "weak hands" can scare up any high-profile events over a long waiting period, which can cause an unplanned avalanche-like drop in quotes.
If you decide to join the group of optimistic investors, be as vigilant as possible, do not succumb to information throws and do not use borrowed funds.
