Uncertainty clouds bitcoin price ahead of imminent halving

Picture: Michael Wuensch from Pixabay

Picture: Michael Wuensch from Pixabay

Published Apr 18, 2024


With the bitcoin halving just weeks away, an event widely expected to occur this month, and the price reaching all-time highs, crypto investors might consider previous halvings to see how it could affect the price, said Luno country manager for South Africa, Christo de Wit.

“There are no guarantees and it is anyone’s guess whether the price will drop, rise or maintain after the April halving,” he said in a statement yesterday.

“Bitcoin’s recent rally to a new all-time high has meant this cycle looks distinct from previous cycles – possibly driven by the recent institutional interest driven by the approval of bitcoin ETFs in the US,” he said.

In rand terms, the price has been considerable over the past six months, more than doubling from R534 338.28 per bitcoin to R1 204 727.57 yesterday.

Every four years, the rate at which new bitcoin are released into circulation gets cut by half. It’s part of a mechanism to prevent the inflationary impact that would be caused by releasing the total supply – which is capped at 21 million bitcoin – too quickly, with the last bitcoin to be mined around 2140.

For the miners who validate transactions on the blockchain, this halving event will see their bitcoin reward cut in half from 6.25 to 3.125 bitcoins per block. Fewer new bitcoins means less supply.

An online search by “Business Report” showed the most recent halving was on May 11, 2020, at a block height of 630 000, reducing the bitcoin block reward value from 12.5 to 6.25.

De Wit said that before the May 2020 halving, the two previous halvings preceded dramatic price increases.

“This cycle already looks very different to previous cycles, with bitcoin testing all-time highs near the halving for the first time in its history,” he said.

Many analysts believe the halving has had minimal impact on bitcoin’s previous price runs.

“Even if you accept the idea that the halving is a primary driver, there’s no guarantee it will continue to be so in the future,” said De Wit.

The months leading up to this latest halving have seen the approval of the first-ever spot bitcoin exchange-traded funds (ETFs) in the US and massive inflows into these funds of over $12 billion.

March also saw a new all-time-high bitcoin price of more than R1.37 million on Luno, said De Wit.

Recently, there have been outflows of around $83m from the ETFs, another factor to consider ahead of the halving.

When the first halving took place in 2012, bitcoin was priced at just over $12.

After the first halving, the price of bitcoin shot up from $12 to about $1 000.

The second halving event happened on July 9, 2016, when bitcoin was valued at about $640. By July 2017, it had risen to $2 550.

Within a year of the third halving, when bitcoin increased from about $8 750 to about approximately $62 000.

The halving does not affect the amount and nature of bitcoin you own. The only impact is the rewards miners will receive.

At the time of the first halving in 2012, there were only 43 000 bitcoin addresses. By the second halving in 2016, there were around seven million and today there are more than 46 million bitcoin addresses with more than $1 in them.

The overall supply of bitcoin will not drop due to the halving. The total supply is always rising and will continue to do so until it hits the cap of 21 million around 2140. .

Miners provide the massive computer processing power to manage and implement bitcoin transactions. They do so to receive new bitcoins for validating transaction data on the blockchain. Commercial mining operations often occupy huge hangars or warehouses, and consume large amounts of electricity to power and cool the computers, which is a considerable cost on top of the equipment.