Analyzing Bitcoin Halving: Mining rewards, market trends, and investment strategies

Today, there are over 19 million BTC in circulation with less than 2 million left to be mined. BTC halving will ensure that these 2 million Bitcoins won't be mined for another hundred years or so. The influence on the mining community will be deep. Mining will obviously be less profitable now, leaving only the larger players in the fray. Strategies will need to be redefined here in order to find better ways of staying profitable apart from the inevitable upgrade of systems.

While the event is completely technical in nature controlled by underlying programs and system controls to the extent that even its exact date is unpredictable, all the above factors have always triggered market uncertainty and volatility around the event. This market volatility is generally viewed positively and is an intrinsic feature of Bitcoin valuation. However, there are inherent speculative risks. Investors must remember that BTC was never intended as an asset class to start with. Given what it has morphed into since, factors influencing the risks around halving need to be considered by investors. They also need to be cognizant that halving was introduced to make it a good economic model with an inflation control mechanism (of BTC) but could lead to increased demand of this completely virtual asset whose pricing is entirely dependent on demand and supply dynamics.

The reduction in fresh supply triggered a bull run for the asset with BTC price surging from $6877.62 before the last halving in 2020 to $8821 when it actually happened. The next year saw it spiral to $49504. A similar pattern was also observed during previous halving events. A host of influencing factors make the upcoming event unique. In the years following the first halving, BTC as well as the entire cryptocurrency asset class with many new ones entering the market has matured. BTC has had several cycles of severe volatility influenced by market conditions. While halving has been a significant catalyst for bull markets, the rate of impact has decreased with each halving.

Also, there has been a substantial increase in market engagement at both individual and institutional levels since the last halving occurred in 2020. BTC has been formalised and there have been several successful bids to integrate it with financial products like exchange-traded funds or ETFs. Significant institutional long-term investment into BTC has happened. In this scenario, the upcoming halving is being closely monitored by network participants and stakeholders like traders and institutional and individual investors for new pricing and support formations. All factors indicate a positive outlook and one would believe that the halving will lead to a market upswing. There is however a word of caution. We need to consider that the current annualized issuance rate is to 1.6%(for miners). Almost 94% of Bitcoin is already in circulation, therefore the anticipated supply shock from this halving may not really have a great impact on the bitcoin price.

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Source: Forex-Markets-Economic Times