“The Halvening” Is Coming For Bitcoin, And Now’s The Time To Position For It

“The Halvening” Is Coming For Bitcoin, And Now’s The Time To Position For It
Jonathan Hobbs, CFA

about 1 year ago4 mins

  • Bitcoin has a total supply of 21 million coins, with over 90% of them already minted by miners.

  • Around March 2024, the number of new bitcoins minted per block will be cut in half for the fourth time in bitcoin’s history.

  • In the past, the year leading up to this event has been a great time to accumulate bitcoin.

Bitcoin has a total supply of 21 million coins, with over 90% of them already minted by miners.

Around March 2024, the number of new bitcoins minted per block will be cut in half for the fourth time in bitcoin’s history.

In the past, the year leading up to this event has been a great time to accumulate bitcoin.

A major bitcoin event, “The Halvening” is just over a year away. And if past “halvings” are anything to go by, it’s not too soon to start stacking Satoshis.

What’s the bitcoin halving?

Miners create new bitcoins every ten minutes or so – that’s the average time it takes them to add a block of around 2,000 transactions to the blockchain. But before a block is ingrained into the ledger, it’s locked by a ridiculously complex cryptographic puzzle. Miners compete to unlock that puzzle, using mining software and impressive levels of computing power. This process, called “proof-of-work”, is what keeps the network ticking over. The first miner to solve each puzzle wins freshly minted bitcoins. I’ve explained more about how it all works here.

Miners have been in business since January 3rd, 2009 – when the blockchain’s (still unknown) founder, Satoshi Nakomoto, coded the first transaction block. Back in those days, the winning miner would be rewarded with 50 bitcoins per block, which added 50 new coins to the total supply. That went on until about four years later, when, in November 2012, those rewards halved to 25 coins a pop. They then halved again in July 2016 to 12.5 coins, and again in May 2020 to 6.25. Sticking with that math, you can expect this to carry on until sometime in the year 2140, when all 21 million bitcoins will eventually have been mined.

Why is the halving such a big deal?

Bitcoin’s only been around for 14 years, but so far, each of its halving events has set off a major bull market rally. And there are two reasons for that.

First, bitcoin becomes less inflationary with each halving date. In crypto, analysts work out the inflation rate by taking the yearly increase in coin supply and dividing that by the total number of coins that are already on the blockchain. That puts the OG crypto’s yearly inflation rate at around 1.8% today, but it’ll drop off to about 0.8% come the 2024 halving. So as the supply of new coins slows, the law of supply and demand implies that the price should trend higher (everything else being equal).

Second, the halving’s impact on bitcoin’s price can be a self-fulfilling prophecy: investors get all hyped up about it, and because they think other investors are just as hyped, everyone starts buying in at about the same time – in anticipation of the next halving-fueled bull run.

What’s the opportunity here?

According to CoinMarketCap’s Bitcoin Halving Countdown, the next halving is expected to kick off sometime in March of 2024. That leaves us with about 64 weeks until the big day, which is interesting when you consider that these build-up periods (blue boxes) have been great times to accumulate bitcoin in the past. So if you think this will play out again, now is as good a time as any to start building up your bitcoin stack.

Bitcoin halving schedule
Source: Chart produced with TradingView.

There are two caveats to keep in mind here.

First, the macro conditions just aren’t as good for bitcoin today as they were throughout the past decade. Bitcoin was born in the ashes of the 2008-09 financial crisis, and the Federal Reserve (the Fed) spent nearly $9 trillion on massive bond-buying or “quantitative easing” programs from then until April last year (essentially “printing money”). But since April, it’s been letting those assets fall off its balance sheet as they mature. Mind you, the Fed (and indeed, central banks in other advanced economies) could still regress back to its recent habit if the employment situation sours and the economy looks to be in need of a jolt.

Second, around 19.25 million coins have already been minted – or 91.67% of the total 21 million supply. So with each passing halving, the scarcity effect becomes less of a thing. At the time of the 2016 halving (Halving 2, below), only 75% of the supply had been mined, but by the 2020 version (Halving 3, below), that number had shot up to over 85%. You’ll also notice how each new event coincided with a rally that was smaller than the last (black line). So while the next halving could be a catalyst for a fresh bitcoin bull run, its percentage price gain could be a shadow of the run that came before (again, everything else being equal).

Bitcoin halving dates and supply schedule
Source: Glassnode.

But if altcoins are more your style, halvings have also been good for the crypto market in general, as a rising tide tends to lift all boats. After all, bitcoin is still the gateway drug for new investors, and the big events have been known to draw in the crowds.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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