We Are Halfway Through to the Next Halving, What to Expect? What Does the Historical Data Dictate?

Bitcoin continues to prove its relevance to the current financial system. The halving event, however, brews a never-ending conversation on BTC’s future outlook. Halving represents a process where mining rewards are reduced by 50% after every four years. 

The First Halving 

Bitcoin’s mining reward was at 50 BTC per block in 2009. The first halving took place in 2012 and the mining rewards dropped from 50 BTC to 25 BTC. Prices began to rise after the event with investors realizing an 8,000% gain between November 2012 and November 2013. The coin’s issuance rate also decreased from 7200 BTCs to 3600 BTCs per day. By November 2013, the digital currency was trading at approximately $1,000. 

Things took a drastic turn in December 2013 when the coin’s price shed nearly 80% of its value. At the time, the price drop was attributed to the Mt Gox exchange hack which lost close to 740K bitcoins. Furthermore, the exchange was handling almost 80% of the transactions during that time. 

The ordeal therefore took a huge toll on the number one cryptocurrency. Bitcoin then embarked on a price reversal in October 2015, nearly two years later.

The economics behind halving hope to not only slash the mining rewards, but also lower the coin’s supply rate. In general, halving ensures that there is a stable supply of Bitcoin in the market. Historically speaking, the halving event had several impacts on the price of Bitcoin and here’s what investors can expect moving forward.

The Second Halving 

The outcome of the second halving event was almost similar to the first. Here, the mining rewards were cut from 25 BTC to 12.5 BTCs per block. Prior to the halving, Bitcoin was trading at $660. The asset accumulated 112% gains nine months after its first halving.

On the halving day (July 16, 2016), the asset’s price briefly moved to $610 which translates to a 10% decrease. A major bull run unfolded later on in 2017 and BTC saw a 2,800% increase within a year. 

The asset hit its highest value in mid December 2017 with an approximate price of $20,000. A bearish momentum came in 2018 when Bitcoin’s price dropped by 80% over a year. By December 2018, the coin’s market price was within the $3,000 range. 

The Third Halving 

The third halving occured in May 2020 amid various uncertainties like the COVID-19 pandemic. During the event, mining rewards saw another 50% reduction, bringing the amount to 6.25 BTCs per block. Before the halving day, (May 11, 2020), BTC’s price moved from $8,000 to $10,000 in a span of nine days. 

The coin had another reversal on May 10, 2020, bringing the asset’s price to $8,100. By May 2021, Bitcoin’s value gained 553% from the last halving. 

Bitcoin Halving Implications

Looking at the demand and supply mechanics of Bitcoin, the halving event is projected to be profitable for investors. As supply reduces, the demand for the asset increases over time. Nevertheless, this price increase will depend on different economic conditions in the market. 

In many scenarios, the price of Bitcoin shot up after the halving incident and fell later in a bearish season. 

Halving also helps reduce the asset’s inflation rate. Ideally, Bitcoin’s inflation rate represents the coin’s purchasing power in the crypto space. The currency began with an inflation rate of 50% in 2011. After the 2012 and 2016 halving, the inflation rates were at 12% and 5%, respectively. Today, the asset’s inflation rate is at 1.69%. 

What Lies Ahead?

The crypto industry is currently in the third halving at the time of writing (June 2022). From the previous halving events, it is evident that there were different price momentums. Moving forward, it may be challenging to predict the asset’s price even as it operates in a high inflation ecosystem. 

Bitcoin shed close to 50% in Q2 of 2022 alone. The downward pressure became more evident in June 2022 as the value fell below the $20,000 mark. This price reduction was largely due to the Fed’s efforts to implement a bigger interest rate. 

Nonetheless, many individuals are optimistic that the digital currency will recover from its current downfall. A recent survey shows that the majority of crypto owners believe Bitcoin will hit $38,000 by December 2022. Despite the global market crash, holders are still bullish on the asset’s recovery.

Final Word

As the halving progresses, the supply rate of Bitcoin will ultimately be lower. This mechanism therefore boosts BTC’s value since there is a limited supply and a higher demand. However, driving the prices up will depend on how the traditional market is fairing since both industries are correlated.

Bearish trends were also present in the previous halving cycles, meaning that prices may fall even as the supply decreases. While past events are not indicative of future outcomes, analyzing the previous halving cycles could help paint a clear picture of Bitcoin’s direction.