The foremost query on many minds regarding the halving revolves around its impact on Bitcoin’s price. What occurs to the price when the creation of new Bitcoins is halved? While we can’t peer into the future, examining historical data can help us identify trends.
It’s evident; the past doesn’t dictate the future. If it did, life would be predictably prosperous yet somewhat dull for all.
Nonetheless, delving into the past holds value. If stable patterns emerge, there’s a chance they’ll persist in the future, at least to some extent due to human belief. So, in this exploration of halving, let’s examine how Bitcoin’s price has responded to previous halvings.
Halving reduces the output of new Bitcoins. In the realm of commodities, one might liken it to a production quota, akin to OPEC’s oil production cuts in the 1970s. Following the Yom Kippur War, OPEC nations slashed oil production by about five percent, triggering an oil price shock that escalated from roughly three to twelve dollars per barrel.
If a mere five percent cut in oil quadruples its price, what might a fifty percent cut do in the realm of Bitcoin?
A lot, as we’ll soon see. Let’s analyze the Bitcoin prices surrounding past halvings:
- Block 210,000: November 28, 2012
- Block 420,000: July 9, 2016
- Block 630,000: May 11, 2020
- Block 840,000: expected April 19, 2024
Observant readers might note that halvings don’t occur precisely every four years as originally planned. This discrepancy arises from the increasing hashrate, while the mining difficulty adjusts only every 1016 blocks, roughly every two weeks. Consequently, miners produce Bitcoins slightly faster until the next halving.
Now, let’s delve into the analysis, backed with ample charts.
A Pattern Emerges:
The initial chart portrays the first reward era, spanning from Bitcoin’s inception on January 9, 2009, to the halving on November 28, 2012. This phase, akin to a historical artifact, witnessed Bitcoin’s nascent price discovery, notably catalyzed by Mt. Gox’s establishment in 2011.
Despite its infancy, this era encapsulates quintessential Bitcoin traits: a bubble in June 2011, where prices surged approximately thirty-fold, followed by an 80 percent decline. By the era’s end, prices stabilized around a robust $10, markedly higher than the outset.
The subsequent reward eras mirrored this trajectory. The second era ended on July 9, 2016, witnessing a modest bubble around $260, succeeded by a substantial surge to over $1,000 before a subsequent 80 percent downturn. By era’s end, Bitcoin stabilized near $500, marking a fifty-fold increase since its onset.
The third era commenced with the July 9, 2016 halving, following a familiar pattern: an early bubble, surging sevenfold within months, followed by a 70 percent downturn. By era’s end, Bitcoin steadied near $8,000, marking a twenty-fold increase.
Lastly, the fourth era, initiated on May 11, 2020, presented a slight deviation. Notable for a double peak near $65,000, marking at least a six-fold increase, followed by a significant two-thirds decline, stabilizing, and remarkably soaring to a new all-time high before its closure.
Halvings to New Peaks:
Halvings themselves are non-events, largely priced in well beforehand, sometimes resulting in price drops. Thus, expecting a sudden surge on April 19th might lead to disappointment. Nonetheless, in each reward era, Bitcoin witnessed substantial long-term price surges. The halved Bitcoin creation consistently propelled prices upward, akin to interest rate cuts buoying stock prices. Six months post-halving, Bitcoin typically re-enters a bullish trend, with new all-time highs attained 10-15 months later.
This exponential growth, while tapering, remains evident. From the first halving to the subsequent peak, prices surged a hundredfold, then twenty-sevenfold from the second, and sevenfold from the third. Extrapolating, Bitcoin’s next cycle might yield a twofold increase to around $150,000.
Examining peaks reveals an intriguing trend: each era’s peak substantially surpassed its predecessor, albeit with diminishing returns. The fourth era’s peak at $65,000, while impressive, marked only a 3.6-fold increase, prompting some to deem it lackluster. Nonetheless, if this trend persists, a $150,000 peak remains plausible.
While patterns aren’t guarantees, Bitcoin’s historical tendencies suggest significant future price surges, albeit not as monumental as some anticipate.
