Bitcoin halvings have historically been viewed as a bullish
event for the cryptocurrency — and the upcoming one, expected in April, could
benefit from an even more ideal setup than in previous cycles, according to
crypto-market observers.
Halving is a mechanism written into the Bitcoin blockchain’s
algorithm to control the coin’s supply, which has a cap of 21 million. At
halvings, the reward for bitcoin mining is cut in half, meaning miners will
receive 50% fewer bitcoins for verifying transactions.
Halvings are scheduled to happen after every 210,000 blocks
that are mined — or about every four years — until the maximum supply of
bitcoin is all released.
Bitcoin BTCUSD, -1.14% tends to see price appreciation in
the months after halvings, according to historical data. The next halving is
expected to happen on April 19, according to a projection by bitcoin investment
platform Swan Bitcoin.
But this particular halving comes at the first time in
bitcoin’s history where the cryptocurrency faces a confluence of factors
impacting both its supply and demand side, according to Cosmo Jiang, portfolio
manager at crypto asset manager Pantera Capital.
As halvings control bitcoin supply, bitcoin exchange-traded
funds are bringing in “steady daily inflows” into the crypto from the demand
side, Jiang said in a call. In January, the U.S. Securities Exchange and
Commission approved 10 bitcoin ETFs for the first time in history.
Increased institutional participation recently pushed
bitcoin to a level near its record high, less than 50 days before the expected
date of the halving. Bitcoin has rallied more than 40% so far this year to
roughly $62,600, and is now less than 10% off of its all-time high of $68,990,
reached in November 2021.
This run-up is different from bitcoin’s historical pattern
before halving, according to Martin Leinweber, digital-asset product strategist
at MarketVector Indexes. Historically, bitcoin’s performance has been
relatively muted in the two to three months before halving, Leinweber noted.
Meanwhile, the Bitcoin blockchain is more secure now than it
has been during previous halvings, according to Adam Swick, chief growth
officer at bitcoin-mining company Marathon Digital Holdings Inc. MARA, +4.25%Bitcoin’s total hash rate, or the total computational power securing the
blockchain, hit a record high of around 600 million terahashes per second in
February, according to data from Blockchain.com.
That helps alleviate some concerns around the security of
the Bitcoin blockchain after the halving, as some miners may be forced to go
offline when the rewards they get are cut in half, noted Swick.
While halving is generally a boon for bitcoin’s value, the
crypto’s price tends to be highly volatile while macroeconomic conditions are
uncertain. That may apply in the current climate, as some investors are worried
that progress in disinflation may stall, while it remains unclear when the
Federal Reserve will start cutting interest rates.
Michael Novogratz, chief executive at crypto investment firm
Galaxy Investment Partners, recently told Bloomberg TV that bitcoin may see
“some corrections” to its price before rallying to new record highs.
