Bitcoin halving 2024
In this article, we will take a look at previous Bitcoin halvings and the upcoming 2024 halving.
INTRODUCTION
The fourth Bitcoin halving is set to occur in the spring of 2024. Bitcoin halvings have traditionally been highly anticipated events in the cryptocurrency world, primarily due to the strong bull markets that have accompanied each of them so far. In this article, we delve into the halving event, examining what exactly happens, how bitcoin's price has behaved around previous halvings, and what to expect from the upcoming halving.
What is a halving?
Before we delve into the details of halvings, it is necessary to briefly explain the technical aspects of this event.
In the Bitcoin blockchain, transactions are grouped into blocks. These blocks are added consecutively to a data structure known as the "chain." The entities that add new blocks to the chain are called "miners."
Once a new block is added to the chain, miners engage in a competitive process to determine who gets to add the next block. In this competition, miners use their computers to solve a cryptographic puzzle, and the miner who solves it first gets to add the block to the chain.
As a reward for winning this competition, the miner receives a "block reward." This block reward is paid to the miner in bitcoins and is the only mechanism through which new bitcoins are issued into circulation. The amount of the block reward is defined in the Bitcoin protocol and is set to halve every 210,000 blocks.
Therefore, the halving of block rewards means that the issuance of new bitcoins is halved as well. Mining 210,000 blocks takes approximately four years, and this event of halving block rewards is referred to as a "halving."
To date, there have been three halvings. When the Bitcoin blockchain was launched in 2009, the block reward was 50 bitcoins per block. After the first halving in November 2012, the block reward was reduced to 25 bitcoins per block. Following the second halving in July 2016, it was reduced to 12.5 bitcoins per block. The most recent halving occurred in May 2020, reducing the block reward to 6.25 bitcoins, which is the current reward. The next Bitcoin halving is set to take place in April 2024, reducing the reward to 3.125 bitcoins.
Halving and Bitcoin Price
Why should such a relatively technical, pre-programmed event in the Bitcoin protocol, publicly known well in advance, command investors attention?
To put it briefly, the most significant bull markets in Bitcoin's history have consistently revolved around Bitcoin halvings. As shown in the chart below, Bitcoin's strongest price increases have typically started about a year before the halving and ended about one to one and a half years after the halving
Figure 1. Bitcoin price and bitcoin halvings.
We will examine each of the previous halving events and their impact on Bitcoin's price later in the article. At this stage, it is sufficient to note that each of the three previous halvings has been associated with a strong bull market, rewarding the investors who bought bitcoin before the halving by three-digit percentage gains (in the case of the first halving, even by five-digit percentages). Based on inductive reasoning, it would appear likely that the fourth halving, which is just over two months away as of the time of writing (February 2024), should also generate significant interest among crypto investors.
Note: Halving Cycles and Mini-Cycles
As a side note for clarity, it is necessary to briefly mention that bitcoin's price development has included other smaller price cycles apart from the four-year halving cycles. These cycles, unrelated to halvings, include:
A cycle from 2010 to 2011 when Bitcoin's price increased roughly a hundredfold and subsequently dropped by about 90%.A cycle in 2019 when Bitcoin's price nearly quadrupled during the first half of the year and then halved during the second half.These smaller cycles are characterized by relatively short durations (6-12 months) and the fact that, during a those bull markets, the price did not reach a new all-time high (ATH) in these cycles. However, price changes in these smaller cycles could still be substantial, which is interesting, especially from the perspective of short-term investors.
For clarity, in this article, the approximately four-year long cycles, centered around Bitcoin halvings, are referred to as "halving cycles," and the smaller price cycles occurring within them are referred to as "mini-cycles."
Three Full Halving Cycles
Now that we understand the concept of a Bitcoin halving, we can take a closer look at the three previous Bitcoin halvings and how they affected Bitcoin's price.
First Halving Cycle: 2011-2015
One year before the first halving, bitcoin had reached the bottom after the 2011 mini-cycle, and in November 2011 its price bottomed out at around $2.20. It then started to recover, and at the time of the halving in November 2012 it was already above $13. In February 2013, the price surpassed the previous ATH (around $30), after which the price rise significantly steepened, reaching a first local peak in April 2013 at around $230. This local peak was followed by a sharp correction of around -70% within a week back to $70. From this local trough, a new, steadily steepening rise began, culminating in a peak of $1,300 in December 2013, almost exactly one year after the first halving. From the peak, a bear market started, ending in a double-bottom pattern with the price going below $200 first in January 2015 and again in August 2015.