Bitcoin halving is one year away. It could indicate a new bull run
- Bitcoin is up 80% since the start of the year. History shows that the cryptocurrency tends to perform well in the run-up to the so-called “halving”.
- The Bitcoin halving, which happens every four years, reduces the reward for successfully mining new bitcoin by 50%. The goal is to reduce access to bitcoin over time.
- Before the last halving, on May 11, 2020, the price of bitcoin increased by 19% from the same day in the previous year.
- Halving is not the only factor affecting price, but it is an important event for investors and the heart of the investment case for bitcoin as a limited supply store of value.
The Bitcoin halving is an event that occurs approximately every four years where rewards to miners are halved, effectively limiting supply of the token.
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Bitcoin is almost a year away from a major technical event – which could be the catalyst for a prolonged rise in the cryptocurrency’s value.
In April or May 2024, bitcoin is expected to undergo its next so-called “halving”, although the exact date is not yet known.
Bitcoin has rallied in recent weeks in anticipation of the halving, as a potential rate cut by the US Federal Reserve battles the prospect of weak growth and tightening credit conditions as a result of problems in the banking sector.
One bitcoin was worth about $30,000 Wednesday morning, according to data from CoinGecko. The world’s largest cryptocurrency is up more than 80% since the start of the year.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said that bitcoin’s jump above $30,000 at a time of bank failures and economic uncertainty suggests that the cyclical “bottom” for bitcoin is forming.
“This tends to happen a year or so before Bitcoin’s halving event, which is scheduled for around April 2024,” Ayyar told CNBC via email.
Bitcoin halvings take place approximately every four years, or every time an additional 210,000 “blocks” are added to the blockchain. The event cuts the rewards of bitcoin miners – volunteers who run specialized equipment to validate transactions on the network and create new tokens – by 50%. The goal is to reduce the number of new bitcoin units released into the market.
Currently, bitcoin miners receive 6.25 bitcoins for each block they successfully mine. This means that their computer had the right amount of computing power needed to solve the cryptographic puzzles that secure the bitcoin network and prevent it from being compromised by malicious actors.
When the next bitcoin halving happens, this reward will be reduced to 3.125 bitcoin.
Supporters of the cryptocurrency say this could help push up the price by increasing the scarcity of bitcoin.
The maximum number of bitcoins that will ever exist in circulation is limited to 21 million. This is ensured by the halving mechanism, where rewards for mining bitcoin will eventually be cut to $0.
Before the most recent halving, which took place on May 11, 2020, the price of bitcoin increased by 19% in the previous 12 months, from $7,191.36 to $8,568.88, according to figures from CCData.
During the halving before that – which happened on July 9, 2016 – bitcoin rose 142% compared to the previous 12 months, going from $269.14 to $651.83.
The first-ever halving on Nov. 28, 2012, saw the price of bitcoin balloon 384% to $12.35 from $2.55, CCData’s figures show.
“When analyzing historical Bitcoin halving patterns, it appears that investors often accumulate Bitcoin ahead of the halving event, although the exact timing and magnitude of post-halving returns can vary,” Jamie Sly, analyst at CryptoCompare, told CNBC.
“The accumulation period from the market bottom after the breakout to the halving date has historically lasted at least 500 days.”
Sly added: “This would mean that if we were to assume that the market bottom for this cycle was last November (when Bitcoin hit an annual low of $15,760), then we are only 142 days into the current cycle. This would correlate with the next expected Bitcoin halving date being another 378 days in the future.”
The Bitcoin price tends to rise even higher, in the months following the halving.
After the May 11, 2020 halving, the cryptocurrency surged 688.31% over the following 546 days, reaching a then-record high of $67,549.14 on November 8, 2021, according to CCData.
The halving before that, which took place on July 9, 2016, sent bitcoin soaring 2,824% to a then-high of $19,065.71 in mid-December 2017.
Bitcoin had a fiery 2022, defined by the collapses of major companies and projects, from stablecoin terraUSD to crypto exchange FTX.
Rising inflation led to higher interest rates in the US and other major economies, which in turn caused investors to flee bitcoin and other risky assets.
This has led to the prices of several of the best digital currencies falling sharply from their records.
Despite the recent rally to $30,000, bitcoin is still down more than 50% from its November 2021 highs.
