After the Bitcoin Halving: Mixed Reactions Among Enthusiasts and Analysts

Almost 14 years after his disappearance, Satoshi Nakamoto, the anonymous creator of Bitcoin, still has an impact on cryptocurrency. On Friday last week, the protocol developed by Nakamoto triggered what is known as a bitcoin “halving” (or “halving”), a process that coincided with price increases for the currency.

A halving is a significant event in the crypto community that occurs roughly every four years.

After the halving, Bitcoin’s market performance remained relatively flat, with a slight decline of 0.47% to $63,747.

What is bitcoin halving and how does it affect the price of the cryptocurrency?

Bitcoin enthusiasts have been eagerly awaiting this event, which is part of the cryptocurrency’s core technology aimed at reducing the rate at which new bitcoins are created.

For some cryptocurrency advocates, the halving underscores bitcoin’s value as an increasingly scarce asset. At creation, Nakamoto set a limited supply of 21 million bitcoins. However, skeptics see the halving as a mere technical change promoted by speculators to artificially inflate the value of the virtual currency.

The halving process reduces the rewards cryptocurrency miners receive for creating new tokens, thus making it more expensive for them to put new bitcoins into circulation.

The halving reduces the supply of new bitcoins, which in theory should increase the price. It is an economic axiom that if the demand for an asset remains stable while its supply decreases, its price must rise.

The last three halvings – in 2020, 2016 and 2012 – resulted in an average price increase of 16% over the next 60 days, according to data from asset research firm 10x Research. The halving in 2016 resulted in a 6% decline over the next 60 days, though it then rebounded strongly in 2017.

Markus Thielen, head of research at 10x says the halving is “associated with price increases due to reduced supply,” but investors will have to wait for a price spike, which usually comes around 500 days after the halving.

Bitcoin has fallen sharply in recent weeks from a recent record high of over $70,000 to around $62,000, but remains a strong performer, up 40% so far in 2024 and more than double what it was at the same time last year .

It’s worth noting that while prices eventually rebounded after the halvings in 2016 and 2020, they suffered prolonged declines – the so-called “crypto winters” in 2018 and 2022, when prices suffered prolonged declines .

“The setup looks really familiar from past times where there was a very sharp rise and it formed a peak,” said Neil Wilson, principal analyst at brokerage Finalto. Analysts at Deutsche Bank wrote on Thursday that the halving was “already partially priced in by the market” and that they “do not expect prices to rise significantly after it.”

Will it have a negative impact?

Bitcoin mining companies, which bear the cost of energy and equipment to validate transactions, are facing a financial hit as their remuneration declines.

Andrew O’Neill, managing director of the digital asset research lab at credit rating company S&P Global, wrote this week: “The block reward remains a significant part of miners’ earnings, so halving the reward has an impact on profitability.”

He added: “Some operations will become unprofitable and will be discontinued as a result, particularly those with higher energy costs.”

For bitcoin mining to become financially sustainable, S&P says the currency will need to be used more widely throughout the global economy to increase miners’ earnings through transaction fees. However, the wider use of cryptocurrency stocks with concerns that energy-intensive Bitcoin mining is already environmentally unsustainable.

For Bitcoin’s many critics, there is also the negative impact of amateur investors who are attracted to any price spikes – and hype – that follow the halving.

Bitcoin gained legitimacy this year, boosting its price, with the US Securities and Exchange Commission allowing exchange-traded funds (ETFs) — a set of assets that can be bought and sold like stocks on an exchange — that track the price of the cryptocurrency. Nevertheless, SEC Chairman Gary Gensler reluctantly gave the go-ahead, describing bitcoin as a volatile asset used for “illegal activity, money laundering, sanctions evasion and terrorist financing.”

O’Neill is also skeptical that there will be a price boom. “The bitcoin market is completely different compared to the previous halvings four, eight and 12 years ago,” he says. “Other drivers such as BTC ETF growth in the US and macro drivers such as interest rates and market liquidity will also influence the price.”

Carol Alexander, professor of finance at the University of Sussex’s business school, says any price increase from the halving will ultimately be illusory.

“It will probably exceed the all-time high, but in the long run it will be worth zero because bitcoin has no intrinsic value,” she says. “It’s just a speculative asset.”