Why is Bitcoin halving 2024 different from previous ones? What investors must Know

For beginners, Bitcoin's supply is capped at 21 million, with miners verifying transactions and receiving block rewards as new coins are generated. Bitcoin Halving occurs roughly every four years, which cuts the block reward for miners in half, impacting both the issuance of new Bitcoins. The halving mechanism is designed to control inflation and maintain scarcity over time.

Past Performance and Future Considerations

Previous halvings have often been followed by significant price increases. For instance, the first Bitcoin halving occurred in November 2012, when the block reward was reduced from 50 BTC to 25 BTC. In the year following this halving, Bitcoin's price surged from around $12 to over $1,000, representing a roughly 83x increase. Similar trends were observed after the subsequent halvings. Following the July 2016 halving (reward reduced from 25 BTC to 12.5 BTC), Bitcoin's price climbed from approximately $650 to a peak of around $20,000 in a span of 18 months, marking a near 30x increase.

The most recent halving occurred in May 2020 (reward reduced from 12.5 BTC to 6.25 BTC). While the immediate impact on price was less pronounced compared to previous halvings, Bitcoin did experience a steady upward trend in the following months. By early 2021, Bitcoin's price had surged to new all-time highs, surpassing $60,000 per coin, which is a 5x increase from the pre-halving price of around $12,000.

Macroeconomic Forces at Play

While the historic price trends do indicate price surge after every halving, it would be riskier if investors rely solely on these. The stock-to-flow model, which links scarcity to price appreciation, has limitations. Examining past halvings reveals that increases often coincided with major macroeconomic events. The 2012 European debt crisis, the 2016 ICO boom, and the 2020 COVID-19 pandemic — all contributed to heightened interest in Bitcoin, demonstrating the influence of broader economic contexts.

The Uniqueness of 2024

The 2024 halving is distinct due to the introduction of spot Bitcoin ETFs in the US, changing investment flows, and an evolving market structure. These factors suggest a halving, which goes beyond the typical reduction in miner rewards.

The approval of spot Bitcoin ETFs in the US marks a significant shift in Bitcoin's market dynamics. These ETFs provide a gateway for a broader investor base, potentially increasing mainstream adoption. The inaugural quarter of spot Bitcoin ETF trading has culminated in approximately $12.1 billion in total inflows across eleven SEC-approved offerings, absorbing a considerable fraction of the potential post-halving sell pressure.

Historically, halvings have introduced potential sell pressure due to reduced miner income. However, Bitcoin ETFs are expected to counterbalance this by attracting new capital. The influx of funds through ETFs could mitigate the impact of post-halving sell pressure, potentially mirroring the effects of another halving.

Conclusion: A Resilient Bitcoin and Future Outlook

This synergy between ETF adoption and evolving market structures lays a robust foundation for Bitcoin's continued rise. While Bitcoin has always held the spotlight as the most popular crypto, the event will have broader implications for the entire ecosystem.

As investors navigate the intricacies of the 2024 Bitcoin halving and its implications, vigilance and adaptability will be key. By staying informed and attuned to the unfolding narrative surrounding the halving event, investors can position themselves to capitalise on emerging opportunities and navigate potential challenges.

(The author is Co-founder, CoinDCX)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)