The Aftermath – Forbes Advisor UK

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The highly-trailled Bitcoin halving event has come and gone, quietly marking a historic moment in the world of digital assets.

On 20 April 2024, the block reward for miners was reduced by half, but you wouldn’t know it from the lack of fanfare. No bells were rung, no fireworks lit up the sky, and the price of Bitcoin remained relatively stable. However, just because the quadrennial event passed without much immediate impact on general investors and markets doesn’t mean the Bitcoin halving was a non-event. Far from it.

In fact, the halving has significant implications for Bitcoin miners, traders, and investors. As the rate at which new bitcoins enter circulation is cut in half, the built-in scarcity mechanism of the cryptocurrency exerts its influence over time. This shift in supply-and-demand dynamics has the potential to shape the long-term trajectory of Bitcoin and the broader crypto market. 

In this article, we’ll take a closer look at what happened, its potential long-term effects, and what it means for investors navigating the evolving world of crypto assets.

What just happened?

On 20 April 2024, at 01.09am, the fourth Bitcoin halving took place. While some hard-bitten enthusiasts may have stayed up late or woken up early to watch the Bitcoin block tick over 840,000, the halving itself is, at least initially, a non-event for most investors. The immediate impact of the halving is felt primarily by Bitcoin miners, who see their block rewards cut in half, affecting their profitability and potentially leading to changes in the cryptocurrency mining industry.

As the rate at which new Bitcoins enter circulation is reduced by 50%, the asset’s scarcity increases. This built-in deflationary mechanism creates a potential long-term upward pressure on Bitcoin’s price. However, the relationship between halving events and price appreciation is not always straightforward and can be influenced by various market factors.

“Bitcoin trading volume generally sees the most significant increase in the 60 days prior to halvings, as interest builds and prices gain momentum,” Megan Stals, a market analyst at trading platform Stake, tells Forbes Advisor.

“This has happened again, with data from crypto exchanges showing a notable increase in volume in March when compared to February, as investors seek more exposure.”

On 12 April, one week out from the halving event, one BTC was worth £55,766. As of 22 April, a few days after the event, the price had dipped lower at £52,484.

Bitcoin price history

However, Stals also points out the challenges miners face, particularly smaller operations, in the aftermath of the halving: “Miners face a profitability squeeze (after the halving) event, due to the increased compute power and energy needed to mint new coins.

“Larger miners should have the resources to invest in new hardware and find more efficient energy sources, but each halving event makes it more difficult for smaller miners to stay in business.”

Despite the increased difficulty for miners, Stals notes that market dynamics play a crucial role in miner profitability. Higher Bitcoin prices could help offset some of the extra mining costs in the short term. However, she adds that “investment in new hardware and finding efficient energy sources is key for their long-term success”.

Stals cites another potential tailwind for the recent halving event: the approval of 11 spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC) in January. These ETFs have made it easier for investors to gain exposure to Bitcoin without the need to navigate cryptocurrency exchanges: “Bitcoin ETFs have proven more popular with older investors on Stake, particularly those aged 45 and above.

“While younger investors may already have direct exposure to Bitcoin through cryptocurrency exchanges, these ETFs offer a solution to older investors who are interested in the space but are unwilling to deal with crypto exchanges and the intricacies of private keys and wallets.”

However, Stals says that Bitcoin is sensitive to higher interest rates, so investors must also take this into account: “There are still concerns that the US has not yet successfully tamed inflation, and traders have begun reducing their expectations for rate cuts in 2024.”

Consumer Price Index data out of the US for April was higher than expected, with inflation for the past 12 months sitting at 3.5%, dampening expectations that any interest rate cuts would come into effect in the first half of the year. Crypto markets were red on the day of the news.

What to watch out for in the next few months

Now that the Bitcoin halving event is over, investors are eager to see how it will affect the cryptocurrency’s price and market dynamics in the coming weeks and months. Historical data suggests that the path to new all-time highs won’t be straightforward.

“While Bitcoin’s price has historically risen before and after each halving event, it has not always been a straight line up. Following previous halvings, prices have often pulled back before reaching a new peak around 220 and 240 days later,” Stals says.

“The halving is often portrayed as a short-term event, but it can take several months to see the full effect.”

One positive sign for Bitcoin’s short-term price action is the recent net inflow into Bitcoin ETFs, indicating that institutional investors are more likely to be buyers than sellers at this stage. However, Stals adds that “investors should keep a close eye on trading activity, as any large one-off sales made by whales could negatively impact short term prices and sentiment”.

As the market adjusts to the new supply dynamics and miners adapt to the reduced block rewards, investors should expect heightened volatility in the coming weeks and months. This volatility can present both opportunities and risks for those looking to gain exposure to Bitcoin.

While the market finds its new equilibrium, Stals suggests potential investors to be prepared for this volatility with a well-thought-out investment strategy that manages risk through proper levels of exposure and maintains a long-term perspective on the asset’s potential. 

What has been the outcome of previous halving events?

Increased awareness and adoption of Bitcoin among Brits means that the impact of the halving event will be felt by more people than ever before. 

The introduction of Bitcoin ETFs in the US markets has also made it easier for a broader audience to gain exposure to the cryptocurrency, further amplifying the halving’s potential impact – although it should be remembered that while these products may be more accessible than buying crypto itself, they are just as volatile as actual crypto assets.”

Looking back at previous halving events, the Bitcoin market has experienced significant price appreciation in the months following each halving. After the first halving in November 2012, Bitcoin’s price rose from around £9 to a peak of £900 in November 2013. Similarly, following the second halving in July 2016, the price increased from approximately £525 to nearly £16,200 by December 2017. The third halving saw BTC hit over £55,900 in the following year.

While past performance does not guarantee future results, these historical precedents suggest the reduced supply of Bitcoins entering circulation after a halving can lead to increased scarcity and, consequently, higher prices. However, it’s crucial to note that the Bitcoin market has matured significantly since the previous halvings, with increased institutional participation, regulatory scrutiny, and mainstream adoption.

As a result, the outcome of the current halving may not precisely mirror those of the past, and investors should remain vigilant in monitoring market developments and adapting their strategies accordingly. 

When is the next halving event?

With the halving event in the rearview mirror, many Bitcoin enthusiasts and investors are already looking ahead to the next BTC milestone. The Bitcoin halving is programmed to occur every 210,000 blocks, which roughly translates to once every four years. Given this schedule, the next halving event is expected to take place in 2028.

As each halving event reduces the block reward by half, the supply of new bitcoins entering circulation will continue to decrease over time. This built-in scarcity mechanism is designed to make Bitcoin increasingly scarce, which, in theory, should lead to higher prices as demand grows while supply diminishes.

However, the relationship between halving events and Bitcoin’s price is complicated. While significant price increases have followed previous halvings, the Bitcoin market is subject to various factors, including regulatory changes, macroeconomic conditions, and increased levels of adoption, particularly following the approval of the ETFs in the US.

As the Bitcoin network matures and adapts, it’s natural to wonder how long the halving process will continue. The answer lies in the coin’s programming. Bitcoin’s pseudonymous creator, Satoshi Nakamoto, set a hard cap of 21 million Bitcoins for mining. With each halving, the rate at which new bitcoins are created slows down, and the final bitcoin is expected to be mined around the year 2140.

This gradual reduction in supply is intended to make Bitcoin more and more scarce over time, potentially driving up its value as demand increases. However, it’s crucial to remember that the cryptocurrency market is highly speculative and that past performance does not guarantee future results.

While the future is always uncertain, one thing is clear: the Bitcoin halving will continue to be a defining event in the cryptocurrency’s journey, shaping its supply dynamics and influencing its value proposition for years to come.