HomeMarket NewsThe Intriguing Phenomenon of Bitcoin Halving: A Deep Dive for Investors

The Intriguing Phenomenon of Bitcoin Halving: A Deep Dive for Investors

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Stepping into the world of cryptocurrencies, one can’t help but be enthralled by the looming Bitcoin (CRYPTO: BTC) halving β€” an event akin to a celestial spectacle for crypto enthusiasts, much like a total solar eclipse captivates astronomers.

Yet, amidst the fervor, a critical question lingers: with Bitcoin already soaring near record highs, bolstered by a significant 50% surge this year due to the introduction of new spot Bitcoin ETFs, is the hype surrounding the halving justified?

To discern the potential trajectory of Bitcoin, a closer examination of the halving’s impact is imperative.

The Significance of the Halving

Every four years, the halving event unfolds. It automatically slashes the Bitcoin rewards granted to miners by half, without room for human intervention. Not even the elusive Satoshi Nakamoto, Bitcoin’s enigmatic creator, can alter this algorithmic fate.

Presently, miners are rewarded with 6.25 Bitcoins for each block added to the blockchain. Post the impending halving around April 20, this reward will diminish to 3.125 Bitcoins, significantly affecting the mining landscape.

Investor buying Bitcoin with smartphone.

Image source: Getty Images.

For prospective Bitcoin investors, the halving might appear mundane. Unlike a stock split, there is no augmentation in the number of Bitcoins held. Moreover, the halving doesn’t directly influence the overall rate of return, contrary to expectations post a dividend cut by a company.

Crucially, the halving doesn’t halve the total Bitcoin supply; rather, it decelerates the pace of new Bitcoin creation. Typically, this triggers a surge lasting anywhere from 12 to 18 months.

Unraveling Bitcoin’s Halving History

Past Bitcoin halvings in 2012, 2016, and 2020 have been extraordinary. Each instance witnessed a meteoric rise in Bitcoin’s value, culminating in new all-time highs.

Consider the aftermath of the May 2020 halving. Bitcoin traded at around $10,000 initially but surged to nearly $69,000 within 18 months, delivering a remarkable sevenfold price surge in a brief span.

Nonetheless, past outcomes don’t guarantee future performance. While the historical pattern has repeated thrice, it may merely be a fortuitous coincidence, akin to flipping a coin thrice and landing heads each time.

Coinbase Global (NASDAQ: COIN) has cautioned about a potential small-sample-size issue, underscoring insufficient data to draw concrete conclusions. An analogy could relate this predicament to predicting the outcome of a whole baseball season based on just a couple of games.

Grasping the Economic Fundamentals

In light of the uncertainty, reverting to basic economics to evaluate the halving’s impact is prudent. At its core, the principle of supply and demand comes into play.

The halving will slash supply growth, precisely when the Bitcoin available for mining is dwindling. With 19.7 million Bitcoin already in circulation out of the capped 21 million coins, scarcity becomes a compelling narrative for Bitcoin.

Simultaneously, the advent of new spot Bitcoin ETFs has injected substantial demand, attracting both retail and institutional investors eager to incorporate Bitcoin in their portfolios. This demand surge is anticipated to escalate as investors progressively increase Bitcoin allocation.

Conclusively, the intersecting trajectories of escalating demand meeting stable supply create fertile grounds for price escalation. If enthusiasm for the new spot Bitcoin ETFs endures, the influx of over $30 billion is expected to rise, potentially fueling another post-halving rally lasting 12 months or beyond.

Hence, the affirmative stance emerges β€” investing in Bitcoin ahead of the halving holds promise.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool upholds a stringent disclosure policy.

The views and opinions expressed herein belong to the author and do not necessarily mirror those of Nasdaq, Inc.

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