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Bitcoin: relationship between halving and price

source-logo  en.cryptonomist.ch 11 March 2023 08:32, UTC

In the spring of 2024, the next halving of Bitcoin will take place: what will be the impact on the price of BTC?

So far there have already been three halvings, and in all and among cases the price of Bitcoin the following year rose.


The past three halvings

The first halving occurred in November 2012, or just under four years after Bitcoin mining began on January 3, 2009, with the creation of the first block.

At that time Bitcoin was worth about $13, and the following year saw the first and largest speculative bubble that ever occurred in the price of BTC.

In fact, within about a year the price skyrocketed to a peak at $1,100, or an 8,300 percent gain in less than twelve months.

It must be said that the first halving brought down the inflation rate of Bitcoin‘s money supply.

All existing BTC was created as a premium for miners who validated blocks, and initially, that premium was 50 BTC per block.

With a block every 10 minutes or so, about 2.6 million bitcoins were being created annually, and since only 8 million BTC had been created by the end of 2011, the annual inflation rate of the Bitcoin money supply then was 32 percent.

With the first halving, the creation of new BTC dropped to 1.3 million per year, and since in meantime by the end of 2012 the BTC created had risen to 10.6 million, and the inflation rate of the Bitcoin money supply suddenly collapsed to 12 percent.

Such a sudden collapse almost instantaneously reduced the supply of BTC in the market, triggering a price growth due to relatively constant demand, which from January 2013 to November of that year generated that incredible percentage gain.

It is no coincidence that a large speculative bubble also inflated the year following the second halving.

The second halving

The second halving occurred in July 2016, but it did not immediately trigger growth.

At that time, the premium for miners rose from 25 to 12.5 BTC per block, bringing the number of new BTC minted each year to 650,000. Since by the end of 2016 a total of about 16 million BTC had already been created, the annual inflation rate of Bitcoin’s money supply collapsed to 4 percent.

The price began to rise in October of that year and then soared especially from April 2017.

During that year, the price reached $20,000, then a gain of 1,700 percent from the previous high in 2013.

The third halving

The third and final halving occurred in May 2020, when the premium for miners was raised to 6.25 BTC per block.

So since then just under 330,000 new BTC are created each year, and since 18.5 million Bitcoins had already been created by the end of 2020, the annual inflation rate of its money supply fell below 2 percent.

In November of that year, the price began to rise, and as early as the following month the last major bubble began to form.

This, however, brought the price of Bitcoin to just under $70,000 in November 2021, or a gain of only 250 percent from the previous peak.

Bitcoin’s next halving and price predictions.

Since a halving occurs automatically every exactly 210,000 blocks, and since the 840,000 block is only just under 60,000 blocks away, with a block mined every 10 minutes or so, it is estimated that the next halving will occur in spring 2024.

At that point, there will be more than 20.3 Bitcoins created, and the reduction to 160,000 new BTC created each year will bring the annual inflation rate of the Bitcoin money supply down below 1 percent.

So this will not be a real collapse, like the one that happened in 12% that suddenly brought this inflation rate from 32% to 12%, but a much smaller reduction that will bring it from less than 2% to less than 1%.

Therefore, it is unlikely that the 2024 halving will immediately have a major impact on the price of BTC, that is, as early as spring or summer of the same year, because it will not reduce the supply in the market by much.

Moreover, all three halvings that have already taken place have caused the price of Bitcoin to rise less and less, from +8,300% to +1,700% to +250%.

It is by no means impossible that in 2024, or 2025, the price of Bitcoin could increase, but it is unlikely to increase by those percentages.

It should also be mentioned that in recent years other cryptocurrencies have drained capital from the crypto markets, which were once concentrated mainly on Bitcoin, so all the more reason why the increase might be smaller, or even not there at all.