Bitcoin ETFs haven't brought a tidal wave of fresh capital to the crypto markets yet, but don't worry. The next supposed price catalyst, the Bitcoin halving, is just around the corner.
Legend has it that Bitcoin halvings are incredibly bullish. After all, the last three bull markets each began to boom just a few months after the respective event.
In Bitcoin's history, there have only been three halvings in 2012, 2016, and 2020, and three is far too small a sample size to draw any meaningful conclusions.
Read more: Bitcoin Halvings Are Bull Market Things – Will It Be Different This Time?
Still, fewer Bitcoins released each day would lead to a supply shortage, believers would say, which would inevitably lead to a rapid rise in Bitcoin (BTC).
The truth is that no one really knows what will happen around the halving, but it is Bitcoin miners who will feel the immediate impact.
Bitcoin distributes all new Bitcoins directly to miners, who suddenly receive 50% fewer block rewards in about three months (around April 19): 3.125 BTC ($135,000) per block, instead of 6.25 BTC ($270,000) .
- Bitcoin self-regulates the time between blocks, keeping it at around 10 minutes on average.
- Miners typically solve 144 blocks within 24 hours, which does not change after the halving.
- Block rewards are currently up to 900 BTC ($38.9 million) per day.
Miners can sell the Bitcoins they earn to cover overhead costs (mainly electricity and in some cases debt). Bitcoin users are also adding transaction fees to block rewards, and thanks to the popularity of Ordinals inscriptions, they are spending more than ever to use the network.
In total, users paid about $500,000 per day in October, but as much as $24 million in December, although miners have earned less than $10 million per day so far in January.
Transaction fees could close the post-halving revenue gap
That still represents about half of the block rewards up for grabs after April 19th. Until then, however, the Bitcoin price should remain roughly the same, and the demand for inscriptions remains constant.
An uptrend in Bitcoin would address halving concerns
All of this makes the Bitcoin price a very sensitive issue for the network.
It's possible at any time that the price of Bitcoin could fall so much that miners would be forced to shut down their facilities to avoid operating at a loss – a common occurrence during the last two bear markets, which led to debt increases and a series of bankruptcies.
Read more: Compute North's business is going south
An estimate from Glassnode last September suggested that a drop in Bitcoin to $30,200 would “likely put the majority of the mining market in severe income stress.” Bitcoin is currently trading for $43,000, which would mean that Bitcoin miners could hypothetically withstand a 30 percent drop in the price of Bitcoin at the next halving.
Glassnode's calculation came weeks before Ordinals triggered a gigantic fee boom, so miners will likely have more leeway than first thought.
(Furthermore, there is far more hashrate on the Bitcoin network than ever before, and its overall security is unlikely to be significantly compromised even if a large percentage of miners were shut down for some reason.)
Block rewards are paid in Bitcoin and are unaffected by the US dollar value. The opposite scenario, where the Bitcoin price rises significantly around the halving, is of course much better for miners and everyone else.
There is no real price pattern associated with the Bitcoin halvings. Except that it generally increases
Any concerns about whether block rewards will be enough to keep miners alive after the halving could be eliminated if the price of Bitcoin simply doubled.
So far, so good. Tracking prices 200 days before the last three Bitcoin halvings shows that BTC is already up 50% so far, largely due to enthusiasm for Bitcoin ETF offerings from BlackRock and others.
This is better than the lead from the last two halvings. At the time, Bitcoin had risen by less than a third before the halving in 2020, and in 2016 Bitcoin had fallen by 3%.
Bitcoin's performance around the first halving in 2012 surpasses the others. BTC gained almost 150% in the 200 days leading up to the event. Including the 200 days thereafter, this number increases to up to 4,500%.
It's just as likely that Bitcoin is mirroring how its largest fork, Bitcoin Cash (BCH), evolved around its own halving.
BCH tripled in the 200 days prior and tripled again the following month – but fell by two-thirds in the following weeks.
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