‘Total circulation will be 21,000,000 coins. It’ll be distributed to network nodes when they make blocks, with the amount cut in half every 4 years. first 4 years: 10,500,000 coins next 4 years: 5,250,000 coins next 4 years: 2,625,000 coins next 4 years: 1,312,500 coins etc…’—Satoshi Nakamoto
Every four years, the Bitcoin network undergoes a significant change known as “halving“, a process that reduces the rewards for mining new blocks by half. This mechanism is built into Bitcoin’s protocol to control inflation and cap the total supply at 21 million coins. Halving events, therefore, are pivotal, highly anticipated occasions within the cryptocurrency community, often triggering speculation and market volatility.
The “stock-to-flow” ratio is a key concept used to measure the current supply of a commodity against the rate of new supply entering the market. For Bitcoin, each halving event markedly increases this ratio, underscoring its growing scarcity. This ratio is widely considered a crucial indicator of Bitcoin’s long-term valuation.
Often, this metric is compared to that of precious metals, such as gold, enhancing Bitcoin’s image as the “digital gold” and reinforcing its role as a store of value for the digital era.
Halving Dips & Surges: Historical Price Analysis
First Halving (November 28, 2012): The reward dropped from 50 BTC to 25 BTC. In the following 12 months, the BTC price escalated from approximately $12 to $1,075, an increase of 8,858%. The inflation rate of Bitcoin decreased from 25.75% to 12% by January 2013.
Second Halving (July 9, 2016): The reward halved from 25 BTC to 12.5 BTC. Over the next year, the price rose from around $650 to $2,560, marking a 294% increase. The inflation rate was reduced from 8.7% to 4.1% by August 2016.
Third Halving (May 11, 2020): The mining reward was further reduced from 12.5 BTC to 6.25 BTC. By May 11, 2021, Bitcoin’s price had climbed from approximately $8,727 to $55,847, a surge of 540%. The inflation rate dropped from 3.7% to 1.8% by June 2020.
These events suggest a pattern where Bitcoin halvings generally lead to diminishing returns, although the percentage gain following the third halving was greater than after the second. This anomaly was influenced by the Federal Reserve’s increase in the M2 money supply, which effectively repriced BTC. However, this trend reversed when the Fed began its new cycle of rate hikes in March 2022, suppressing asset prices.
Sentimental Analysis: Current Developments and Future Projections
(Bitcoin balance available in exchanges. Source: Glass Node)
The recent approval of US Bitcoin ETFs has been a major catalyst, fueling significant investment and disrupting market expectations. These inflows propelled Bitcoin to new all-time highs, signaling a potential bull market. However, this bull run is still in its early stages, so investors should anticipate volatility and potential price corrections.
The upcoming 2024 halving event is expected to further reduce Bitcoin’s supply, which could drive up demand. Yet, factors like selling pressure, regulations, and global economic conditions will heavily influence the outcome. Interestingly, the market is demonstrating signs of maturity with fewer dramatic price swings compared to past cycles.
This stability could broaden Bitcoin’s appeal. Additionally, a decline in Bitcoin balances on exchanges hints at increased investor holding behavior. This pattern may lead to a supply shock, potentially pushing prices even higher. Overall, while past performance is never a guarantee, Bitcoin’s current strength, alongside positive indicators and the historical impact of halving events, offers a cautiously optimistic outlook.
Recently, Bitcoin experienced a sharp decline, reaching its lowest level in a month following geopolitical tensions after Iran’s drone strikes towards Israel. This event triggered a sell-off, shedding about 8% of Bitcoin’s value in a brief period. Historically, though, such geopolitical conflicts have eventually fueled the cryptocurrency market. Looking forward, the anticipated first rate cut by the Federal Reserve in mid-2024 is expected to further influence Bitcoin’s price positively.
Technical Analysis:
Currently, Bitcoin is exhibiting a pre-halving retracement characterized by bearish signals and lateral market movements. A technical analysis of the weekly time frame reveals the formation of a Cup and Handle pattern in Bitcoin’s price chart. Traditionally, this pattern can precede further downward movements. Notably, there is robust support within the $60,000 to $61,000 price range. Should this support level be breached, it is plausible to anticipate a retraction towards the $51,000 mark. In a worst-case scenario, prices could potentially decline to around $45,000 and it may indicate an interim bear market.
In the daily time frame, Bitcoin’s price action is exhibiting consolidation within a defined range, marked by the formation of a triple top pattern. This pattern is typically recognized as a bearish reversal indicator, emerging after a sustained uptrend. The appearance of the triple top on Bitcoin’s daily chart may signal a potential shift in market sentiment from bullish to bearish.
Should Bitcoin break through the crucial support level at $60,000, we could witness a notable downtrend, with the price potentially falling to the $50,000- $51,000 range. This pivotal movement highlights the importance of closely monitoring these key technical levels, which serve as critical indicators for Bitcoin’s short-term market movements.
In integrating the Exponential Moving Average (EMA) with a period of 200 into our analysis, we enhance our insight into potentially precarious scenarios. Should the price range breach and Bitcoin (BTC) descends into the specified $50,000-$51,000 zone—coinciding with the EMA (200)—we could anticipate significant turmoil within the Altcoin Market Capitalization. A failure by BTC to maintain support at the critical EMA (200) juncture may signal the onset of a temporary bear market, as previously indicated. Notably, BTC’s descent below the EMA (200) is widely recognized as a conventional strategy for exiting bull markets.
Considering various macroeconomic and microeconomic factors, there is a solid foundation for optimism about Bitcoin’s potential to rebound and set new all-time highs. Projecting a target of $120,000 for Bitcoin in 2024 is well-grounded in the current market dynamics and historical performance trends. This outlook emphasizes the critical need to monitor key technical thresholds and market sentiments closely as Bitcoin approaches its next halving event.
The intricate array of factors surrounding Bitcoin’s halving events reveals that these are not merely technical updates but pivotal market catalysts. Historical trends of price increases post-halving, alongside evolving market sentiments and technical patterns, provide deep insights into Bitcoin’s future potential. The recent approval of U.S. ETFs and shifts in the global economic landscape add new dimensions to market predictions, yet the fundamental economic principles of supply and demand remain the driving force behind Bitcoin’s long-term viability.
As we look forward to the 2024 Bitcoin halving, it is clear that it brings both challenges and opportunities. Investors and market analysts are advised to maintain vigilant oversight of crucial technical levels and broader market indicators. Through meticulous analysis and a sophisticated understanding of Bitcoin’s market mechanics, stakeholders are well-equipped to navigate the upcoming fluctuations and exploit the opportunities that emerge as Bitcoin further matures and becomes more integrated into the global financial system.
With six years of industry experience, Jithin excels as the Relationship Management Lead at Mudrex and has recently ventured into Research Analysis. He is passionate about market trends and technical analysis, continually expanding his expertise in Portfolio Management and Alternative Assets through detailed research and reading. Jithin also writes investment blogs with a focus on cryptocurrency and actively engages in trading, demonstrating his well-rounded expertise and dedication to the dynamic world of finance.
