April 22, 2024

Bitcoin halving 2024

Overview
Themes
Research and Insights

In a year filled with milestones, the much-anticipated bitcoin halving event took place on April 19, 2024, marking a historic moment in the world of digital assets.

We provide an overview of bitcoin (BTC) halving and review its impact on supply and market structure, the effects of previous halvings and potential changes to the market.

As a core component of Bitcoin’s design, the halving is a scheduled recalibration of the rewards that are earned for mining the asset. As an asset that uses a Proof-of-Work consensus mechanism to reach an agreement on the state of its network, Bitcoin provides rewards to miners who generate new blocks. On the Bitcoin blockchain, after every 210,000 blocks are mined, or approximately every four years, there is a mechanism called the “halving” that reduces the creation of new Bitcoin by cutting the mining reward in half.
Bitcoin’s halving mechanism can be seen to strengthen its position as a store of value asset like gold, as it increases supply scarcity, which when combined with its decentralized nature can appeal to those seeking a hedge against economic uncertainty.

Economically, the reduction in the rewards rate associated with the halving introduces a deliberate scarcity, potentially impacting Bitcoin’s market value if demand is sustained or escalates. This deliberate slowing of supply growth is akin to an economic throttle, controlling inflation and mimicking the extraction of a finite resource.

Bitcoin’s halving mechanism and each halving event serve as not just a feature of the token’s economic strategy but also as a critical inflection point that shapes the future of the network’s security, operational dynamics, and, ultimately, its long-term viability.
The April 2024 halving event will be Bitcoin’s fourth halving. Historically, Bitcoin halvings have served as pivotal landmarks, each event ushering in a new era of market dynamics.

The first Bitcoin halving occurred on November 28, 2012, and reduced the reward for mining a block from 50 BTC to 25 BTC. At the time of this halving, BTC was priced at ~$12.20. This halving marked the beginning of Bitcoin’s deflationary reward supply and occurred early in the asset’s life cycle prior to its widespread recognition as an investable asset.

The second Bitcoin halving occurred on July 9, 2016 and reduced the reward for mining a block from 25 BTC to 12.5 BTC. Bitcoin was priced at $651 at the time of this halving and a period of significant price increases followed, drawing considerable attention to the asset’s investment potential and scarcity-driven value proposition.

The third Bitcoin halving occurred on May 11, 2020 and reduced the reward for mining a block from 12.5 BTC to 6.25 BTC. Bitcoin’s price at the time of this halving was $8,821, a significant rise over the previous halving and a reflection of the asset’s growing stature.
As Bitcoin approaches its fourth halving event in April 2024, digital asset markets are at a point of evolving regulatory clarity and increasing institutional adoption. On the regulatory side, governments and authorities globally continue to scrutinize digital assets while working to establish frameworks that ensure investor protection and compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) standards.

This regulatory evolution has implications for the industry. Bitcoin has several factors that have positioned it uniquely against concerns, like its decentralized Proof-of-Work consensus mechanism, established track record as one of oldest digital assets, and the absence of a yield component. Throughout early 2024, Bitcoin has seen increased institutional adoption, largely in part due to the U.S. Securities and Exchange Commission (SEC) approving spot ETFs in January 2024.

These products not only enhance liquidity, but also integrate digital assets more closely with broader financial markets, signalling a maturation phase for the industry. ETFs and growing institutional acceptance may lead to an environment where digital assets play an increased role in the diversification and strategy of investment portfolios, further solidifying their position in the global financial architecture.
The halving’s impact on miners will be a key area to watch after it occurs. The adjustment in miner revenue due to reduced rewards could lead to increased volatility, especially if the network's computational power, or hashrate, fluctuates significantly.

In the long run, if the price of Bitcoin does not appreciate to match the reduction in rewards, a decrease in miners could make the network more vulnerable to manipulation or attacks, such as a 51% attack, where an entity gains control of the majority of the network's mining power and can manipulate the blockchain.

Even if Bitcoin’s price does not increase after the halving, there are some factors that could help to compensate miners for the reward reduction. Miners also earn transaction fees and if Bitcoin’s adoption continues to increase, then transaction volume and associated fees may also rise.

The rise of the BRC-20 token standard could also lead to increased miner revenue. BRC-20 allows for the creation of fungible tokens on the Bitcoin blockchain using a method known as ordinal inscriptions and has introduced a new way to utilize the Bitcoin network beyond its original purpose as a peer-to-peer electronic cash system.