Excitement spread among Bitcoin enthusiasts worldwide in April as they eagerly awaited the Bitcoin halving event. This event was anticipated to drive the price of the popular cryptocurrency to new heights.
However, three months later, the price of Bitcoin (BTC) has failed to see the significant surge that many had predicted. Despite reaching $65,481 on April 19, the day of the halving, the price of Bitcoin has remained stagnant and even slightly decreased as of July 16. The halving occurred, but the expected price increase did not materialize.
In this article, we will delve into the mechanics of Bitcoin halvings and explore potential reasons why the current price does not reflect the excitement from April.
Understanding Bitcoin Halvings
Picture a massive digital gold mine where miners unearth a specific amount of gold, or in this case, Bitcoin, every 10 minutes. A halving is a programmed event that cuts the amount of Bitcoin miners receive in half. Prior to April 19, miners earned 6.25 bitcoins for solving complex mathematical problems. Following the halving, they now receive 3.125 bitcoins. This halving event occurs roughly every four years in the realm of Bitcoin.
The primary purpose of halvings is to control the total supply of Bitcoin, which is capped at 21 million. By gradually reducing the rate of new coin issuance, similar to the scarcity of precious metals, halvings aim to create scarcity. If the demand for Bitcoin remains steady or increases while the supply is restricted, the price per Bitcoin could potentially rise.
According to CoinMarketCap.com, approximately 19.7 million Bitcoins have been issued so far.
Historical Impact of Halvings on Bitcoin Price
Supporters of the halving theory often cite past events as evidence. Prior to the April halving, three other halvings took place in 2012, 2016, and 2020.
Historically, investors who bought Bitcoin and held onto it for eight to ten months post-halving witnessed significant positive returns.
The 2020 halving resulted in the most dramatic price increase for Bitcoin following the event. Bitcoin was priced at $8,628 on May 10, 2020, the day of the halving. By the end of the year, Bitcoin had surged to $28,888, marking a remarkable 234% increase. Ten months later, the price had reached $57,278, reflecting a 563% increase.
While various factors contributed to Bitcoin’s price surge in 2020 and 2023, including investors using Covid-19 relief funds to invest in cryptocurrencies, the two previous halvings also led to substantial gains in the months after the event.
For instance, in mid-July 2016, Bitcoin was valued at $654. However, about ten months later, its value had soared to $2,432, representing an increase of over 271%.
These historical trends fueled expectations that the 2024 halving would trigger another significant price rally.
Nevertheless, historical data indicates that it often takes several months for Bitcoin’s price to experience an upsurge.
“Looking at past cycles, we observe that the price initially decreases after the halving,” explains Adam Blumberg, the co-founder of Interaxis, a company specializing in cryptocurrency and blockchain education for financial advisors. “Bitcoin miners may need to sell off their holdings as their revenue is halved while their expenses remain constant.”
The Halving Occurred. Why Hasn’t Bitcoin’s Price Increased?
While history may provide parallels, it rarely repeats itself exactly. Several factors could account for the current lackluster performance of Bitcoin’s price following the halving.
It is crucial to remember that while historical patterns offer valuable insights, they do not guarantee future outcomes.
“Every cycle and every day presents unique circumstances,” notes Blumberg. “We should not always anticipate the same results.”
Here are some potential explanations for why Bitcoin has yet to experience a surge.
Pricing in Future Gains
Prior to the halving in 2024, significant news rocked the cryptocurrency market. In a landmark development, the U.S. Securities and Exchange Commission (SEC) finally approved the first Bitcoin spot exchange-traded funds (ETFs) in January.
This long-awaited regulatory approval was seen as a crucial step in legitimizing Bitcoin in the eyes of mainstream investors.
The anticipation surrounding the ETF sparked a buying frenzy both before and after its approval on January 10. Bitcoin’s price surged by 31.5% from November 10 to January 10.
“A portion of the demand was pulled forward by several months,” explains Blumberg. “I believe the media coverage also contributed to the price increase before the ETF approval.”
Following the availability of the ETF for trading through traditional brokerage accounts, Bitcoin witnessed another substantial price surge. Between January 10 and March 13, the cryptocurrency spiked by 50%, reaching a new all-time high of $73,835.
While some of this increase may be attributed to the Bitcoin ETF, crypto investors may have also entered the market around March with expectations of a significant price rise post-halving.
This surge could have been a classic case of “buy the rumor, sell the news.” Investors who anticipated that the halving would propel Bitcoin to new heights might have heavily invested prior to the event, only to pull out afterwards, leading to a price correction.
The price surge triggered by the ETF approval, combined with the anticipation of the halving itself, could be a key reason why Bitcoin has not witnessed the meteoric rise that many had anticipated.
Macroeconomic Factors and Alternative Investment Options
Global economic challenges such as inflation and rising interest rates are putting pressure on people’s finances. With limited investment capital, Blumberg suggests that individuals may be turning to less volatile investment options.
“Currently, there are other opportunities for yield and growth, such as U.S. Treasuries offering 4-5% returns and the Nasdaq reaching all-time highs,” he explains.
In the long term, economic uncertainty could drive individuals towards Bitcoin as a perceived hedge or store of value. However, in the short term, Blumberg believes that economic conditions are dampening Bitcoin’s price potential.
“The uncertainty surrounding the future of U.S. politics is also a concern,” Blumberg points out. “The outcome of the election will significantly impact the future regulation of Bitcoin and cryptocurrencies.”
German Government’s Large Bitcoin Sell-Off
This summer, the cryptocurrency market faced an additional challenge in the form of a massive Bitcoin sell-off by the German government.
Over the past month, Germany sold approximately 50,000 bitcoins confiscated in January from the now-defunct movie piracy site, Movie2k.to. This government action, amounting to billions of dollars’ worth of Bitcoin flooding the market, could be suppressing the cryptocurrency’s price, according to Blumberg.
“While the new supply has decreased due to the halving, the available supply has significantly increased,” he notes.
Adding to the pressure, the long-awaited distribution of funds to creditors of the collapsed Mt. Gox exchange began in July. Mt. Gox, which went bankrupt in 2014, held around $9 billion worth of Bitcoin. The release of these funds further inflated the supply of cryptocurrency in the market.
This influx, coupled with the reduced new supply from the halving, may have resulted in an overall supply situation that did not decrease as much as anticipated.
Conclusion
The highly anticipated Bitcoin halving in April 2024 did not bring about the immediate price surge that many had expected. While the halving itself decreases the long-term supply of Bitcoin, other factors have converged to dampen its short-term impact.
While the recent price performance may be disappointing for some, the halving remains a significant event in Bitcoin’s narrative of controlled issuance and potential long-term value. The future price of Bitcoin will be influenced by the evolution of these factors alongside broader market trends.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Additionally, investors are reminded that past performance of investment products is not indicative of future price appreciation.