The conflict within the Middle East precipitated a pullback from the $70,000 for Bitcoin (BTC-USD). Nonetheless, this drawdown was already in progress because the market weighed the higher-for-longer interest-rate policy. Yet, though those contributing aspects definitely could proceed to maneuver Bitcoin prices, there’s an imminent event that might prompt an excellent larger influx or exodus.
Just like the Olympics, it happens (roughly) every 4 years. It’s the Bitcoin halving, also referred to as the halvening. There was a time when only blockchain geeks knew about this event, but now it’s front-page news within the financial press.
That’s because, within the wake of spot Bitcoin exchange-traded fund (ETF) approvals, non-professional cryptocurrency traders are self-educating on the events that move digital-asset prices nowadays. Education is sort of at all times a great thing, but with the Bitcoin halving event that’s about to happen, there could also be more questions than answers at the tip of the day.
Saturday is the day. Are you ready?
Simply to recap, the halvings/halvenings are events through which the reward that miners receive for mining Bitcoin is cut in half. Currently (assuming you’re reading this before Saturday, April 20), the reward for mining Bitcoin (or more accurately, for verifying transactions on the Bitcoin blockchain) is 6.25 tokens; post-halving, that reward will likely be reduced to three.125 tokens.
This is anticipated to happen on Saturday, and it is going to be the fourth halving event since Bitcoin’s inception in 2009. The thought isn’t to punish Bitcoin miners but moderately to manage the available, circulating supply of Bitcoins.
In any case, that’s one among the features that separates Bitcoin from fiat currencies just like the U.S. dollar. There’ll only ever be 21 million Bitcoins in existence, so there’s an inflation-resistance feature in-built. With the intention to avoid flooding the market with too many Bitcoins directly, these halving events dis-incentivize and thereby decelerate mining activity.
It’s been estimated that this 12 months’s halving will, when all is alleged and done, deal a $10 billion blow to cryptocurrency miners. Among the many best-known publicly traded Bitcoin miners are Marathon Digital Holdings (NASDAQ:MARA), Riot Platforms (NASDAQ:RIOT) and HIVE Digital Technologies (NASDAQ:HIVE).
Before you panic-sell your mining stocks, though, consider that the financial markets are well aware of the approaching halving event. Surely, traders have already discounted their fears and concerns about Bitcoin-mining stocks by now. For instance, Marathon Digital Holdings stock has been halved (mockingly enough) from $30 to $15 since late February.
If the markets are good at anything, it’s pricing in anticipated events ahead of time. Perhaps you’ve noticed that bullish Bitcoin traders didn’t sit around and wait for the Securities and Exchange Commission (SEC) to really approve spot Bitcoin ETFs. Knowing that this event was inevitable, they ran up the Bitcoin price prior to the SEC’s actions.
What’s going to occur to Bitcoin after the halving?
Even within the non-financial media, individuals are asking whether the Bitcoin price will rally after Saturday’s halving event. It seems like everybody and his uncle is anticipating the halving, but that’s exactly why it might develop into a “nothing burger.”
Sure, one could look to the past for clues about what might occur. In line with CNBC, “After the 2012, 2016 and 2020 halvings, the bitcoin price ran up about 93x, 30x and 8x, respectively, from its halving day price to its cycle top.”
You’ll notice that, thus far, the post-event rallies have shrunk with each halving. Still, even when Bitcoin “only” doubles this time, that may represent a considerable return on one’s investment.
Don’t get too excited, though. To begin with, the historic sample size is simply three halving events. Scientifically minded investors shouldn’t consider this to be a longtime, actionable pattern. Besides, because the old saying goes, past performance doesn’t guarantee future returns.
And again, we should always come back to the concept of the financial markets as a discounting mechanism. All known events, including upcoming/anticipated ones, are immediately priced into financial assets. That’s why the markets are called “efficient.”
Now that retail traders and institutional investors have joined the blockchain geeks within the crypto trade, it’s likely that the market has already front-run the anticipated post-halving Bitcoin rally. It is a plausible hypothesis in light of Bitcoin’s sharp year-to-date run-up.
Thus, it’s sensible to refrain from making any assumptions about what is going to occur to the Bitcoin price post-halving. As a substitute, I encourage investors to think long-term and consider the massive picture. If you have got a firm belief in cryptocurrency as a limited-supply, inflation-resistant fiat-money alternative, then it will probably make sense to carry some Bitcoin no matter what happens before, during and after Saturday’s much-touted event.