Bitcoin Halving: Lessons Learned So Far from the Past

Since the launch of the Bitcoin network, one of the most intriguing aspects of the premier cryptocurrency has always been the halving event. As the name suggests, Bitcoin halving refers to a protocol-level change where the issuance of bitcoin to BTC miners is cut by half. 

To date, there has been a total of three BTC halvings. These happened in 2012, 2016, and 2020. As you might notice from the pattern, a Bitcoin halving occurs every 4 years. Accordingly, the next Bitcoin halving is scheduled to occur sometime in May 2024.

In more technical terms, a Bitcoin halving occurs after every 210,000 blocks on the Bitcoin network. When Bitcoin’s pseudonymous creator Satoshi Nakamoto launched the network by mining the first or the Genesis Block, the block reward earned by the miners was 50. 

As you might have inferred by now, miners are scheduled to compete for fewer BTC every four years. Considering the rapid growth in the popularity of Bitcoin as a medium of exchange, store of value and censorship-resistant money, an increasing number of miners are continually entering the already competitive BTC mining industry. As a result, Bitcoin mining companies and enterprises are actively moving to geographies that are conducive to energy-intensive BTC mining operations. Typically, regions or countries with a low cost of electricity are the preferred choices for BTC mining firms. It is because of this reason that we are seeing natural resources-rich nations such as Canada emerge as one of the top destinations for BTC mining farms. 

What Is the Rationale Behind Bitcoin Halving?

While the concept of Bitcoin cutting its issuance rate by half every four years might seem a little confusing at first, it is, however, central to the success of the Bitcoin network in the long run. To understand the significance or reason behind Bitcoin’s halving, one must consider the incentives of BTC miners.

When Satoshi Nakamoto launched Bitcoin in 2009, a hard coded maximum finite supply of 21 million BTC was included. This means that once a total of 21 million BTC  is achieved, there will be no more Bitcoin left to mine for the miners. Subsequently, these Bitcoin miners will no longer have any incentive to continue their operations other than collecting Bitcoin transaction fees and secure its monetary value. To ensure that Bitcoin miners continue to mine the cryptocurrency for as long as possible, Nakamoto introduced the Bitcoin halving phenomenon.

Simply put, Bitcoin halving makes sure that the amount of BTC that can be mined within each block decreases. In turn, this puts downward pressure on BTC’s supply and, subsequently, makes it more valuable due to increasing demand.

During the first halving, which took place in  2012, BTC traded in double-digits at $12 while the next year it surged to as high as $1000. Similarly, during the second halving on July 9, 2016, Bitcoin tumbled to $670 only to go parabolic to $2,550 by July 2017. In fact, in December 2017 Bitcoin hit an all-time high value of more than $19,500 and received mainstream attention for the first time since its inception. Although we now know that Bitcoin halving has a tremendous impact on BTC’s price, it is worth wondering whether the same has any impact on the network too.

Bitcoin Halving’s Impact on the Bitcoin Network

Now that we have discussed the rationale behind Bitcoin halving, let us shift our focus to the impact of Bitcoin halving on the Bitcoin network.  

When talking about the wider Bitcoin network, it is important to first identify the various stakeholders associated with it. Among others, two of the most active stakeholders in the Bitcoin network are investors and miners.

As far as investors are concerned, a Bitcoin halving typically leads to a surge in BTC price which, in turn, helps the investors book profits. However, for long-term holders, Bitcoin halving is almost insignificant other than the fact that it increases the book value of the BTC holdings they have been accumulating over the years. As mentioned earlier, periods immediately preceding and succeeding a Bitcoin halving are very volatile. However, BTC’s price historically has always moved up following every Bitcoin halving so for investors looking for sudden upside potential, purchasing and holding BTC closer to its halving might be a worthwhile idea to consider.

For miners, a Bitcoin halving could have multiple impacts. While on one hand, they benefit from the increased price of Bitcoin due to its diminishing supply, they are also forced to compete for fewer Bitcoin in the future due to the halving. The adverse impact of Bitcoin halving is particularly noticeable for individual or small mining firms who find it strenuous to compete with the larger Bitcoin mining companies and enterprises that can sustain intensive power usage for fewer Bitcoin due to economies of scale.

Is Bitcoin Halving Only Meant to Increase BTC’s Price?

Primarily, the reason behind Bitcoin halving is to compensate or reward BTC miners for their service to the network while also ensuring that, over time, the price of the cryptocurrency continues to trend up due to diminishing supply.

Every subsequent Bitcoin halving leaves fewer BTC for the miners to mine for the next four years. Therefore, overall, one could say that Bitcoin halving is somewhat negative for the miners assuming there is no significant growth in the overall demand for Bitcoin. However, history says otherwise as every halving so far has played a crucial role in pushing Bitcoin’s price upwards. As Bitcoin continues to evolve as an asset class, it also continues to find new use cases. The premier cryptocurrency started as a purely peer-to-peer (P2P) medium of exchange and a store of value. 

Over the years, Bitcoin has soared to a market cap of more than $1 trillion. In recent times, Bitcoin has also received recognition from numerous nation-states and institutions such as El Salvador and many other countries. These countries have made Bitcoin legal tender further strengthening its use cases. Bitcoin can also be used to earn extra yields through decentralized finance (DeFi).

Considering the aforementioned range of different use cases, it is fair to say that Bitcoin will continue to dominate the digital assets space and witness greater demand with diminishing supply as a result of the Bitcoin halving.

Bitcoin’s Price Action During the Past Bitcoin Halvings

First Halving – November 2012

The first Bitcoin halving occurred on November 28, 2012, when the block reward for BTC miners was slashed by half from 50 to 25 Bitcoin. The maiden Bitcoin halving occurred when block number 210,000 was solved on the Bitcoin network to add the latest transaction on the blockchain. At the time of the halving, a total of 10.5 million or 50 percent of the total maximum supply of 21 million BTC had already been mined. 

In terms of price, on November 28, 2012, Bitcoin exchanged hands at $12 per BTC. However, fast-forward to November 28, 2013, and Bitcoin was trading at $1,217, indicating an increase in price by orders of magnitude. The first halving gave the cryptocurrency space the taste of the strength of Bitcoin halving and how much potential it holds to catapult the asset’s price into orbit. However, this was not the last time that a Bitcoin halving played a role in pushing BTC’s price upwards. 

Second Halving – July 2016

The second Bitcoin halving occurred on July 9, 2016. During this halving, the block reward was further slashed by half from 25 BTC to 12.5 BTC for miners. The second halving occurred at block height 420,000 while Bitcoin was trading at $650.63 per BTC. However, unlike the first Bitcoin halving, this time the price of Bitcoin did not immediately take off. In fact, for the rest of July, Bitcoin traded within a very tight range before eventually witnessing a massive sell-off which crashed BTC’s price to as low as $533 by August 3. However, it didn’t take long for price reversal.

The second halving was followed by what turned out to be the biggest crypto bull market at the time when Bitcoin hit an all-time high value of $20,089 on December 17, 2017. In terms of percentage from the day of the second halving, this indicates a gain of a massive 2,916 percent. It is worthy of note that the premier cryptocurrency rewarded the patient holders as the rise in price from $666 to $20,089 took a total of 17 months.

Third Halving – May 2020

The third and the most recent Bitcoin halving occurred shortly after what could be called Bitcoin’s toughest test to date, the coronavirus-induced crash of March 2020. The halving took place just two months after the spectacular crash where both the global equity and crypto markets tumbled violently. However, just like all the prior halvings, the third Bitcoin halving marked the beginning of the biggest Bitcoin bull-run to date.

At the time of the halving on May 2020, Bitcoin traded at $8821. For the rest of the year struck by the coronavirus pandemic and endless money printing by central banks around the world, Bitcoin continued to lead the crypto market and eventually hit an all-time high value of approximately $69,000 in November 2021. As a result of the third Bitcoin halving, the block rewards for miners were reduced from 12.5 BTC to 6.25 BTC. The third halving occurred at block height 630,000 where a total of 93.75 percent of the total Bitcoin supply had been mined.

What to Expect from the Next Bitcoin Halving?

The next Bitcoin halving is slated to occur in 2024 at block height 840,000 where the rewards for BTC miners will be slashed from the current 6.25 BTC to 3.125 BTC per block. Although the next Bitcoin halving is still almost two years away, by observing data from the past, one can make an informed guess about BTC’s price action during the next halving.

Bitcoin’s current all-time high value sits at just above $69,000. However, with the halving event getting closer, expect BTC to trade closer to – if not above – its ATH value. If the 2020 halving is any indication, Bitcoin can jump from its current price to more than $300,000. This is not just wild speculation but an informed guess that takes into account the Bitcoin network’s strength, its rising adoption fueled by its network effects, its resistance to state-sponsored censorship, affordable transactions and use in the smart contract economy.

That being said, there are also fair chances that BTC investors will try to front-run the next halving and we might see Bitcoin’s price skyrocketing well before the 2024 halving. It won’t be a surprise to see Bitcoin making a new all-time high sometime in 2023 with holders trying to purchase BTC in the anticipation of the upcoming 4th halving. 

Another factor to consider is that as Bitcoin continues to evolve into a mature digital asset with its ballooning market cap, the volatility and impulsive price will continue to go down. At the time of writing, Bitcoin commands a market cap of almost $1 trillion. As the market cap of any asset increases, the associated volatility tends to go down and the same could apply to Bitcoin’s price during the next halving. However, it is not necessarily a negative development for Bitcoin as a smooth price progression will help it earn more trust and confidence from investors who continue to be on the fence due to BTC’s volatility.

What Happens After the Last Halving?

A popular question that resides in every Bitcoiner’s mind is what would happen after the final Bitcoin halving. The honest answer to it is that no one knows. At present, it’s pure speculation to try to guess Bitcoin’s state after its last halving. For the uninitiated, the final Bitcoin halving will occur just before all the 21 million BTC have been mined. At this stage, no new Bitcoin will be issued and BTC miners will only be rewarded with transaction processing fees and not with any block reward. 

Assuming Bitcoin maintains its current traction in terms of adoption and use, the final Bitcoin halving is expected to occur sometime in the year 2140. As you might imagine, it is too far in the future right now and any kind of guess would be pure speculation. 

Final Thoughts

Bitcoin halving is often one of the most misunderstood concepts about cryptocurrency. Many people view it as a quick price-inflating mechanism that is aimed towards keeping Bitcoin relevant and inducing the fear of missing out among others.

On the contrary, Bitcoin halving functions as an indispensable part of the wider Bitcoin infrastructure that makes it the most successful, widely adopted and leading cryptocurrency. Bitcoin halving will play a crucial role as BTC continues to chart its course toward cementing itself as a globally accepted store of value.