Bitcoin completes its fourth "halving" in history

Just now, Bitcoin completed its fourth "halving" in history.

According to analysis websites mempool.space and Blockchain.com, the "halving" took effect at 8:10 pm New York time on Friday.

The so-called "halving" refers to the halving of rewards miners receive through mining. Every time the Bitcoin blockchain generates 210,000 blocks, the Bitcoin block reward is halved. Including this time, Bitcoin has undergone four "halvings" since its inception in 2009.

After the news came out, the price of Bitcoin slightly declined, now fluctuating around $63,550 per coin.

As a result of this halving, the number of Bitcoins produced by miners daily through verifying transactions has decreased from 900 to 450, and the reward miners receive has decreased from 6.25 Bitcoins to 3.125 Bitcoins.

Is "Halving" the Beginning of a New Bull Market?

Bitcoin supporters previously expected that the "halving" would act as a positive catalyst for the latest bull market, as the demand is rising (from Bitcoin spot ETF) while the "halving" further reduces the supply of Bitcoin.

Historically, price fluctuations around Bitcoin halving events have attracted widespread attention. In the 30 days before the halving events in 2012, 2016, and 2020, the price of Bitcoin rose by 5%, 13%, and 27% respectively. In addition, halving events have also driven the growth of Bitcoin addresses, especially in the 150 days after halving, the number of newly created Bitcoin addresses increased by 83%, 101%, and 11% respectively.

However, despite Bitcoin prices soaring to record levels after past halving events, market observers including analysts from JP Morgan and Deutsche Bank previously predicted that the impact of this halving has largely been priced in by the market.

JP Morgan analyst Nikolaos Panigirtzoglou stated on Thursday that he expects Bitcoin to be under pressure in the short term, citing overbought market conditions and Bitcoin's price still relatively high compared to gold (considering volatility adjustments). He also mentioned a downturn in crypto project financing.

Deutsche Bank analysts share a similar view. In a report on Thursday, analyst Marion Laboure stated, "The market has to some extent already digested the impact of the Bitcoin 'halving'. Considering the nature of the Bitcoin algorithm, this halving has largely been anticipated by the market "We expect that the price of Bitcoin will not rise significantly after the halving."

Kok Kee Chong, CEO of Singapore digital asset exchange AsiaNext, stated: "As expected, the 'halving' has been fully reflected in the price, so the price movement is limited. Now, the industry is eagerly waiting to see if there will be a rebound in the coming weeks under continued institutional interest."

Mechanically, "halving" itself should not affect the price of Bitcoin in the short term, but many investors expect a significant increase in the coming months based on Bitcoin's performance after previous halvings. After the halvings in 2012, 2016, and 2020, the price of Bitcoin increased by about 93 times, 30 times, and 8 times respectively from the halving day price to the peak of the cycle.

It is worth noting that after each Bitcoin halving, the impact of newly mined Bitcoins on the total Bitcoin supply (i.e., dilution effect) weakens. For example, after the first halving, the newly mined Bitcoins accounted for 50% of the total circulating Bitcoins at the halving, which had a significant impact on the total supply. However, after the fourth halving, the newly mined Bitcoins will only account for 3.3% of the current total supply, significantly reducing the impact on the total supply.

Halving Income? The Biggest Victims of the Halving Have Emerged?

Compared to Bitcoin itself, the impact of this halving on miners is greater.

In the lead-up to the halving, Bitcoin miners experienced turbulent trends, with companies like Riot Platforms closing down about 41% on Friday, but having surged by 356% in 2023. Since the beginning of this year, most Bitcoin mining company stocks have fallen by double digits, contrasting sharply with the 300% to 600% gains in 2023.

Morgan Stanley analyst Reginald Smith recently pointed out in an investor report:

"All else being equal, 'halving' will slash industry revenue, triggering a new round of industry consolidation and mine closures. However, at the same time, 'halving' is expected to rationalize network computing power and industry capital expenditures, ultimately benefiting the surviving mining companies."

Bitcoin miners' income mainly comes from two sources: mining rewards and transaction fees. The halving directly affects miners' mining rewards, but miners' operating costs, such as electricity and equipment expenses, will not decrease due to the halving.

This means that if the price of Bitcoin and transaction fees do not rise significantly to offset the impact of the halving on rewards, many miners may face profitability challenges.

Gautam Chhugani, an analyst at Bernstein, stated:

"In the absence of a Bitcoin ETF, the market has so far viewed mining stocks as proxies for Bitcoin. The halving will further differentiate mining companies: winners with low costs, scale, and integration will stand out from the many small and medium-sized mining companies, which may be at a disadvantage after the halving ”