Bitcoin's highly anticipated “halving” event is about to happen. In this event, which occurs every four years, the supply of newly minted coins will decrease by 50%, dropping from 6.25 to 3.125. Halvings are designed to keep Bitcoin resilient to inflation and have historically led to significant price increases. However, experts warn that a rise in Bitcoin prices may not be imminent.
While the Bitcoin price rose from around $44,000 to an all-time high of $74,000 in January due to demand for spot ETFs and the halving, it has fallen 12% in the last two weeks. According to Vetle Lunde, a senior analyst at K33 Research, this pullback was expected because the halving was widely priced in and expected by the Bitcoin algorithm.
“The compounding effect of reduced issuance takes months to materialize and we do not expect the halving to lead to a meaningful rally either before or immediately after,” Lunde said. This view is also supported by Deutsche Bank analysts. They note that the two previous halvings in 2016 and 2020 were preceded by large price increases of nearly 20% and 40%, respectively.
Analysts also point to the impact of increased production costs for Bitcoin miners as a result of the halving. “Participating in the process of guessing the hash and adding a block to the blockchain becomes less profitable as the reward for mining decreases,” one analyst said. As a result, the total computing power used to mine Bitcoin, called hashrate, dropped by 25%, 11% and 25% respectively immediately after each halving.
“Market demand, or lack thereof, now plays a more important role in increasing the price of Bitcoin than the decline in the rate of new Bitcoins being produced,” said Cory Klippsten, CEO of Swan Bitcoin. Geoff Kendrick, head of cryptocurrency research at Standard Chartered, added:
“I don't think the halving was a big deal this time; the impact of ETF flows on supply and demand conditions was much greater.”
Looking ahead, those in the industry expect consolidation. Fred Thiel, CEO of Marathon Digital Holdings, the world's largest mine, predicts that about 10% to 25% of miners (likely smaller firms) will go offline at some point. “Smaller, inefficient miners will be forced to start selling assets to raise capital to shore up their balance sheets to stay afloat,” said Core Scientific CEO Adam Sullivan.
*This is not investment advice.