How the Bitcoin halving may impact BTC price

Bitcoin halvings reduce new supply of BTC and induce market demand. As we prepare for the next halving in April 2024, we analyse the previous halvings and identify the right time for long-term investors to enter/exit the market.
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Quick brief: Bitcoin halvings are a rare but key event in the crypto space. It reduces new supply of BTC thereby inducing a market demand that reflects in a strong upward price action. Already, talks of the next halving in April 2024 are gathering stream as crypto investors prepare for this eventuality with much to cheer. Given this context, we analyse the previous halvings and identify the right time for long term investors to enter/exit the market. 

Refresher: What is Bitcoin halving?

Bitcoin halving takes place when 210,000 “blocks” added to the blockchain from the previous one (roughly every four years). The event cuts the rewards to miners by half. Currently Bitcoin miners receive 6.25 BTC for each block they successfully mine. Halvings will occur until around the year 2140, when all 21 million coins are fully mined.  The next halving is slated to happen around April 2024 post which the miners will receive 3.25 BTC per block.

Let us analyse key trends leading into April 2024:

1. 2020 is a good indicator of 2024 and beyond

Price naturally increases a) in anticipation of the halving and b) post the halving when market demand likely exceeds new supply.

The first two halvings (2012 and 2016) were muted as BTC was still in the periphery in terms of adoption. But price appreciated gradually in the year leading into the event and significantly post the halving.  

Price fluctuations around the first two halvings

Source: Coindesk

The 2020 halving is likely to be an indicator of how things can pan out in 2024.

Price remained flat leading into the 2020 halving 

Source: IntoTheBlock

During the third halving, the prices were relatively flat prior to the event, excluding the exogenous shock of the March COVID-driven sell-off, and then reached an all-time high of $69,000 nearly 18 months after in November 2021.

2. BTC dominance is likely to increase strongly in the next 12 months

During 2020 halving, BTC’s dominance hovered around 65% having gained from below 50% in the previous year. It remained in an uptrend for the next 6 months post the halving before altseason took over in early 2021. Bitcoin’s dominance currently sits at 48%.

BTC dominance increases before an halving and reduces post the event

Source: Trading View

3. Bitcoin halving has never occurred during a potential recession

Given Bitcoin was conceptualized post 2008, it has never seen a global recession. The chances of one in 2023 continue to be solid. If it happens, we anticipate that the behaviour of BTC’s price will be similar to 2020 but at a lower scale or with a delay of a few months.

During the 2020 halving, the event happened amidst the coronavirus pandemic though it did not deter the growth of BTC adoption. According to beincrypto, the volume of Bitcoin traded and exchanged in early 2020 was 2,800% higher than that seen in 2016.

What should you, the investor, do now?

1. Understand the market conditions and invest in BTC: Bitcoin may appeal as an attractive investment option in the short term and can reach a new all-time high after its halving though it is unlikely to see the same growth as previous cycles due to increased market size and competition from other digital assets including ETH. Analysts believe that the next halving is already 50% priced in and BTC has the potential to reach $40-50,000 by April 2024. Also, the interest from institutional players in Bitcoin as a hedge against inflation and macroeconomic uncertainties has grown leap and bounds. However, a recession can temper the growth leading into the halving while its growth after can still be considerable. A tweet by popular account PlanB summarizes the strategy well – buy BTC 6 months before the halving (Nov. 2023) and hold for 2 years hence.

2. Hold for the long term: The cryptocurrency market is known for its volatility, and short-term gains can quickly turn into losses. By holding onto your BTC investments for the long term, you may be able to ride out market fluctuations and potentially see greater returns over time.

3. Diversify your portfolio 6-12 months post the halving:  The halving event will see an increase in BTC dominance leading into it. That means altcoins will underperform BTC in this period. 6 months post the halving may be a right time to convert some of your BTC stack into ETH and other top altcoins for a considerable gain as BTC dominance can drop.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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