Bitcoin ETFs have yet to invite a tidal wave of new capital into the cryptocurrency markets, but don’t worry. The next supposed price catalyst, the Bitcoin halving, is just around the corner.
The myth is that Bitcoin halvings are massively bullish. After all, the last three bull markets started rising only a few months after each event.
There have only been three halvings in Bitcoin’s history, in 2012, 2016 and 2020, and three of them are too small a sample size to draw any meaningful conclusion from.
Read more: Bitcoin Halving Is a Bull Market Thing – Will It Be Different This Time?
However, fewer bitcoins being issued each day will lead to a supply crunch, believers say, inevitably sending Bitcoin (BTC) skyrocketing.
The truth is that no one really knows what will happen after the halving, but Bitcoin miners will be the ones who will feel its immediate effects.
Bitcoin distributes all new bitcoins directly to miners, who in about three months (around April 19) will suddenly receive 50% lower rewards: 3.125 BTC ($135,000) per block of 6.25 BTC ($270,000).
- Bitcoin self-regulates the time between blocks, keeping it around 10 minutes on average.
- Miners typically solve 144 blocks in a 24-hour period, which will not change after the halving.
- Block rewards are currently adding up to 900 bitcoins ($38.9 million) per day.
Miners can sell the Bitcoin they earn to cover overhead expenses (mostly electricity and in some cases debt). Bitcoin users also pay block rewards with transaction fees, and thanks to the popularity of Ordinals, they are more likely than ever to use the network.
Users collectively paid about $500,000 per day in October, but as much as $24 million in December, though miners have earned less than $10 million per day in January so far.
This still represents about half of the rewards available after April 19. But the price of Bitcoin should remain roughly the same until then, along with continued demand for coins.
Bitcoin staying where it is would resolve concerns about the halving
All this makes the price of Bitcoin a very sensitive issue for the network.
It is always possible that the price of Bitcoin could fall so low that it could force miners to shut down their machines for fear of taking a loss – a common occurrence in the last two bear markets, leading to increased debt and a series of bankruptcies.
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One estimate from Glassnode last September suggested that a Bitcoin drop to $30,200 “would likely put the majority of the mining market under severe income pressure.” Bitcoin is trading for $43,000 at the moment, which means Bitcoin miners can theoretically withstand a 30% drop in Bitcoin price over the next halving.
Glassnode’s calculations were done weeks before Ordinals generated a huge surge in fees, so miners likely have more breathing room than initially expected.
(There is also a much higher hashrate on the Bitcoin network than ever before, and its overall security is unlikely to be significantly affected even if a large percentage of miners are shut down for whatever reason.)
Block rewards are paid in Bitcoin and are not affected by their value in USD. So, the opposite scenario, in which the price of Bitcoin rises dramatically around the halving, is of course much better for miners and for everyone else.
Any concerns about whether block rewards will be enough to keep miners afloat after the halving can be put to rest if Bitcoin’s price simply doubles.
So far, so good. Tracking prices 200 days after the past three Bitcoin halvings shows that Bitcoin is already up 50% so far, driven largely by hype around BlackRock’s ETF bids and others.
This is better than the lead-up to the last two halves. Bitcoin had jumped by less than a third by this point before the halving in 2020, and in 2016, Bitcoin was down 3%.
Bitcoin’s performance around the first halving in 2012 blew others out of the water. Bitcoin rose nearly 150% in the 200 days leading up to the event. Including 200 days after this number extends to 4500%.
Bitcoin will also likely determine how its largest fork, Bitcoin Cash (BCH), performs at its halving.
Bitcoin Cash tripled in the 200 days before that, and tripled again the following month — but would go on to collapse by two-thirds over the following weeks.
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