Welcome to the fifth era of Bitcoin.
Following the planned network reduction of newly issued Bitcoins, a new era of digital scarcity has been ushered in. Like clockwork on Friday, the reward miners earn for validating Bitcoin transactions was cut in half for the fourth time since the blockchain’s launch.
Bitcoin’s so-called halving occurred shortly after 8 p.m. ET on Friday. As a result, miners will earn 3,125 BTC per block created until 2028 probably. This is part of miners’ contributions to solve cryptographic puzzles that help keep the Bitcoin network secure, until this figure was halved again and again until the 22nd century.
As routine as it may be, Bitcoin’s halving, triggered by just seven lines of code from Bitcoin’s pseudonymous creator Satoshi Nakamoto, is at the heart of the asset’s qualities. As Galaxy’s digital analyst, Gabe Parker explain on Twitter (aka X), halving is “the backbone of [Bitcoin’s] transparent and predictable monetary policy and makes Bitcoin a manifestly scarce asset.
As for the price of Bitcoin, it’s anyone’s guess what will come next. But historically, the price of Bitcoin has gained positive momentum following each halving, although usually not immediately.
However, a changing macroeconomic landscape, prior knowledge of how halvings play out, and investment vehicles newly within Wall Street’s reach make this moment distinct in Bitcoin’s history.
Bitcoin’s “most explosive gains” typically occur 180 days after the halving, Matthew Sigel, VanEck’s head of digital asset research, wrote in a recent statement. blog post. On average, the price of Bitcoin increased by 427%, from 30 days before the halving to 180 days after. On a related note, Bitcoin surged 116% in 2020, from $6,800 to $14,850, the blog post states.
Do you remember 2020? Importantly, Bitcoin’s third halving occurred when monetary policy was extremely accommodative as central banks grappled with a pandemic-era slowdown threatening to disrupt the global economy, said Dessislava Aubert, research director at crypto analysis company Kaiko. Decrypt.
“The Fed was easing rates,” she said before the latest halving. “For me, the main difference from the most recent halving, the one we had in 2020, is the macro environment.”
As U.S. consumer prices soared in 2022, the Federal Reserve stepped in and raised interest rates at a breakneck pace to bring inflation under control. Today, monetary conditions are relatively tight and markets move based on expectations about when the Fed might cut rates — and by how much, Aubert said.
“There are a lot of fears [the Fed] could cut rates less than three times this year,” she said. “It would be bad for risk assets and probably for Bitcoin too.”
Despite higher interest rates, Bitcoin set a new all-time high price in March amid Wall Street’s embrace of spot Bitcoin ETFs. Attracting billions of dollars in inflows since January, products that allow investors to gain exposure to Bitcoin in traditional brokerage accounts have created an anchor for Bitcoin demand, according to Coinbase analysts David Duong and David Han. wrote in March.
“With major institutional players now able to gain exposure through these vehicles, Bitcoin’s response to the next halving will not necessarily reflect its performance in previous cycles,” they wrote, adding that stable demand for products could lead to less volatility.
The volatility that marked previous halvings may also be less, due to Bitcoin miners’ increased experience in navigating the event, Kaiko’s Aubert said. Typically, some struggling miners are forced to sell Bitcoin because the price of its production doubles.
“This time around, I think the miners are better prepared,” she said. “They have built liquidity…and the sector has consolidated significantly over the past year. »
The prospect of reduced distress among miners was shared by Charles Chong, chief strategy officer at cryptocurrency mining and staking company Foundry, who said: Decrypt that the miners had plenty of time to prepare. In some sense, this could show how far their overall sophistication has reached.
“While the prospect of revenue halving overnight every four years is unprecedented in other industries, the predictable nature of these events allows for strategic preparation,” he said. “Overall, the halving requires refinement of operations, which could be interpreted as bullish in the long term by fostering a more resilient and efficient mining landscape.”
Edited by Andrew Hayward