Bitcoin advocates expect the halving to be a positive catalyst for the latest bull market since it further reduces the supply of new tokens at a time when demand for them has risen from new exchange-traded funds that directly hold the digital asset.
Proponents of the original cryptocurrency such as MicroStrategy chairman Michael Saylor have touted it is a better store of value than traditional fiat currencies, which they say are more vulnerable to inflation.
Still, while bitcoin has rallied to records following past halvings, market watchers including analysts from JPMorgan Chase & Co. and Deutsche Bank AG had predicted that the event was pretty much priced into the market.
“As expected, the halving was fully priced in so price movement was limited,” said Kok Kee Chong, chief executive officer of Singapore-based AsiaNext, a digital-asset exchange for institutional investors.
“Now the industry will have to wait and see whether a rally will occur in the coming weeks amid sustained institutional interest.”
Notably, the dilutive effect of Bitcoin mining decreases with each halving. While the number of tokens mined in the cycle that followed the first halving amounted to 50 per cent of Bitcoin outstanding at the time the halving took effect, new supply in the upcoming cycle will only amount to 3.3 per cent, according to data compiled by Bloomberg.
Bullishness toward Bitcoin in the near term may be dampened by macroeconomic influences, such as signals from the Federal Reserve that interest-rate cuts are on hold and conflict in the Middle East, according to Edward Chin, co-founder of Parataxis Capital.
“We are likely to chop a bit over the coming quarter until there is clarity on the macro front,” Chin said. “During that time, the primary driver of price will likely continue to be ETF fund flows.”
The main impact from the halving is expected to be on Bitcoin mining companies rather than the actual price of the cryptocurrency.
The blockchain update is poised to wipe out billions of dollars in annual revenue for miners, though the effect will be mitigated if the cryptocurrency’s price continues to rise.
Bitcoin mining is an energy-intensive process, in which miners use specialised computers to validate transactions on the blockchain. Large-scale miners such as Marathon Digital Holdings and Riot Platforms have spent billions of dollars on acquiring energy, purchasing mining equipment and building out data centres.
JPMorgan expects the sector to consolidate, with publicly-traded firms gaining market share.
“Publicly-listed Bitcoin miners are well positioned to take advantage of the new environment, mainly due to greater access to funding and in particular equity financing,” JPMorgan analysts wrote in a note this week. “This helps them to scale their operations and invest into more efficient equipment.”
Past halvings have been completed with no discernible disruption to the functioning of the Bitcoin blockchain.
The next halving is set to take place in 2028 and the reward will be reduced to 1.5625 from 3.125 for a miner that successfully processes a block of transaction data.
The average time to finish a block is around 10 minutes. There are expected to be 64 Bitcoin halvings before the 21 million cap is reached sometime around 2140, at which point halvings will cease and the blockchain will stop issuing new tokens.
When that happens, Bitcoin miners will have to rely on transaction fees, their other revenue source besides mining rewards. Rising transaction fees may help some miners stay afloat as the rewards continue to dwindle, yet those fees are currently only a small portion of total revenue for miners.
Bloomberg
