Bitcoin halvings often are accompanied by increased market volatility

2024-2-8 16:22

In an exclusive interview with Invezz, Abhishek Singh, co-founder and chief metaverse officer of AcknoLedger – a global consortium that maps, monetizes, and distributes web 3.0 digital assets seamlessly across all the metaverses and gaming NFT – demystifies Bitcoin halving.

Q) Can you explain what Bitcoin halving is and why it’s essential for the cryptocurrency’s scarcity and value?

A) Bitcoin, being the oldest and most popular cryptocurrencies by far, has maintained its dominance so far, because of its scarcity. But how does Bitcoin maintain this scarcity, and therefore its value?

The answer is what is known as the Bitcoin Halving: an event that occurs once every four years, or after every 210,000 blocks have been added to the Bitcoin chain. During the halving, the reward that miners receive for mining blocks on the chain is slashed by half, gradually reducing the amount of Bitcoin that enters the market over time.

The halvings were put in place by Bitcoin’s creator, Satoshi Nakamoto to guarantee that the cryptocurrency has a finite and steady supply. Bitcoin has a supply cap of 21 million bitcoins, meaning that Bitcoin is immune to inflation or “induced devaluation”.

For every block added to the Bitcoin network, the miners currently receive 6.25 Bitcoin as a reward. However, after the coming halving (expected to arrive in April 2024), these rewards will be “halved” again, to $3.215 Bitcoin per block.

The halving also serves to encourage the miners to maintain the network’s security. After each halving, the block rewards decrease, and the network’s difficulty rises. This means that the miners must now put in more “work” to secure the network, making it more resistant to attacks.

Q) How do Bitcoin halvings affect the cryptocurrency’s price, and why do many anticipate a price surge post-halving?

A) The price expectations from Bitcoin after the halvings are no secret at this point.

Many investors expect the price of Bitcoin to rally straight up after the halvings because the balance between supply and demand has been tipped. And maybe they’re right. Historically, the price of Bitcoin has always reacted in one way or another to halvings.

Bitcoin typically spikes, declines, and then rallies strongly upwards after the halvings, leading many investors to believe that halvings have a direct impact on the cryptocurrency’s price.

Q) Could you provide examples of how Bitcoin’s price has reacted to previous halvings?

A) Certainly. A good example is from one of the halvings in November 2012, when the reward first got slashed from 50 to 25 bitcoins per block. Right around that time, Bitcoin was only three years old and traded at around $12.

After the halving, however, the price started to lag around $10 and $20 for months, to the frustration of investors. However, a year after that in November 2013, Bitcoin was trading at over $1,000 after rising to 10 times its original value.

The second one from 2016 halved the block reward again from 25 to 12.5 and hit Bitcoin at around $650. By 2017, Bitcoin was trading at nearly $20,000: DO you see a pattern now? The same happened in 2020 and raised Bitcoin’s price from around $10,000 to a high of $69,000 in May 2022.

Q) What potential risks are associated with Bitcoin halving events, particularly price volatility and market crashes?

A) While Bitcoin halvings often precede bullish price trends, they are accompanied by increased market volatility and the potential for sharp corrections.

These corrections are typically triggered by profit-taking from institutional investors and can lead to significant price declines. For example, following the 2020 halving, Bitcoin experienced a substantial crash from its all-time high, highlighting the inherent volatility in cryptocurrency markets.

Q) With the next Bitcoin halving scheduled for 2024, what are your predictions for Bitcoin’s price trajectory in the coming months?

A) Predicting Bitcoin’s price trajectory with certainty is challenging, given the inherent unpredictability of cryptocurrency markets.

However, based on historical trends, we can expect heightened market activity and the potential for both price appreciation and volatility surrounding the 2024 halving. Investors should remain vigilant and consider the long-term fundamentals of Bitcoin when navigating market fluctuations post-halving.

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