The Bitcoin Halving - What Happens to the Price of BTC?

The Bitcoin Halving is the biggest event in cryptocurrency. Occurring once every four years, the Halving – also known as the Halvening – results in a 50% reduction in the amount of new Bitcoin being created.

The creator of Bitcoin, who called themself (or themsleves) Satoshi Nakamoto, had an idea to create a deliberately deflationary system. This is where less new money enters the system over time, theoretically resulting in a long-term increase in purchasing power.

This is in contrast to fiat currencies, whose central bank overseers tend to print money in such a way that inflation is kept constant and the currency is worth less over time. (It’s why a Ford Model T cost US$825 in 1909, but an equivalent car might cost closer to US$30,000 now.)

That’s the theory, so what about in practice? So far Bitcoin has experienced three Halvings, with a fourth due on April 20, 2024. Has the experience matched Satoshi's vision?

Halving #1: 28 November, 2012

For the first few years of its life, every Bitcoin block produced 50 new BTC. Worth somewhere close to $5 million dollars in today’s market, the closing price on the day the Halving occurred was US$12 – meaning the block reward went from US$600 to US$300 overnight.

There was a lot of anxiety attached to the first Halving. Bitcoin remained a little-known fringe technology and there were fears that the new economics of the post-Halving market would drive miners out of business and open the network up to attack.

These worries were, obviously, misplaced. Six months later, the price had shot up by around 1000%. By the time the bull market peaked in December 2013, that figure was closer to 10,000%.

Halving #2: 9 July, 2016

The second Halving – where the block reward was reduced from 25 to 12.5 BTC – happened against the backdrop of considerable malaise in the crypto community.

Following the explosive events of 2013, crypto prices had been stuck in a dismal flatline for years. Even worse, Bitcoin was being torn apart by battles over the block size – a conflict that eventually led to the carving off of Bitcoin Cash – and was facing new pressures from the launch of Ethereum. This new network offered the excitement, vision and new functionality that Bitcoin lacked.

Despite this, the market was more optimistic than it had been in years, with prices having already doubled from their mid-2015 nadir.

On Halving day, a single Bitcoin cost US$640. And then for 6 months almost nothing happened. But then the price began surging around December and by March it had reached a new all-time high. Cut to December 2017 and a single Bitcoin was selling for US$20,000 – a 3,000% increase.

Halving #3: 11 May, 2020

If previous Halvings had been accompanied by worries that Bitcoin might collapse, when Halving #3 arrived it felt like the whole world could get there first.

A few months into the worst pandemic in 100 years, the market had already witnessed the worst black swan event in Bitcoin’s history, when the price plunged 50% in a matter of hours after the first global lockdowns were announced in March.

By the time the Halving arrived, most of the damage had been rectified, but to say that it was an uncertain time is putting it lightly. The Bitcoin price was US$8600 on the day of the Halving itself and then spent 6 months doing, once again, not very much.

But come December a new surge saw the price break through the US$20,000 barrier and start rocketing upwards on its way to the US$63,000 mark – a more than 700% increase.

Halving #4: 20 April, 2024

We don’t know what the effect of the fourth Halving is going to be, but already a couple of things set it apart from the previous Halvings.

First is price. Whereas the previous Halvings have all occurred when Bitcoin was around half the price of its previous all-time high, this time we’ve already broken through the US$63,000 mark.

Does that mean any price appreciation should start from this mark? Or does it suggest that the effect of the Halving has already been priced in?

Second is the arrival of the US Bitcoin ETFs. The ETFs are the reason why the Bitcoin price is already so elevated. And by making it considerably easier for institutional investors to access Bitcoin, it’s hoped that their presence will supercharge demand amid newly diminished supply.

Conclusion: Bubbles and the Bitcoin Halving

Looking at the history of the Halving to date, four things become clear:

The long-term trend matches Satoshi’s vision for a currency that appreciates in value over time.

Halving events unleash significant volatility and unstable bubbles.

It can take time for the market to respond after the Halving event.

The percentage gains have become less with each Halving.

So, why do Halvings seem to create bubble effects? Market psychology can be, at times, very simple.

In this case, the Halving produces new interest in Bitcoin, this translates (over time) into a break of the previous all-time high, this produces even more interest in Bitcoin and then everyone races in to try and get a slice of the pie before it’s too late.

However, strip out the bubbles and crashes and you’re left with a chart that goes up and to the right in a fairly predictable fashion – just as Satoshi Nakamoto envisioned.

There’s no guarantee that this formula will continue on into perpetuity. To work, demand for Bitcoin needs to keep on increasing and even with the new ETFs we don’t exactly know what the limit on demand might be.

Similarly, Bitcoin ownership could hit a threshold point (say, a number of countries adding Bitcoin to their balance sheets) that will cause an upwards inflection from the current pattern.

In the end, your best approach is probably to ignore the Halving altogether, keep dollar cost averaging into your investment and stick it out for the long haul. After all, if you’d bought $100 of Bitcoin on the day of the first Halving, you’d have more than $800,000 today.