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Welcome to Bitcoin’s fifth epoch.
Following the network’s programmed reduction in newly issued Bitcoin, a new era of digital scarcity has been ushered in. Like clockwork on Friday, the reward that miners earn for validating Bitcoin transactions was slashed in half for the fourth time since the blockchain’s launch.
Bitcoin’s so-called halving occurred at just after 8pm ET on Friday. As a result, miners will earn 3.125 BTC per block created until some time likely in 2028. It’s part of miners’ dues for solving cryptographic puzzles that help keep Bitcoin’s network secure, until that’s halved again and again well into the 22nd century.
Routine as it may be, Bitcoin’s halving—which is triggered by just seven lines of code from Bitcoin’s pseudonymous creator, Satoshi Nakamoto—is core to the asset’s qualities. As Galaxy Digital Analyst Gabe Parker explained on Twitter (aka X), the halving is “the backbone of [Bitcoin’s] transparent, predictable monetary policy and makes Bitcoin a provably scarce asset.”
As for Bitcoin’s price, what comes next is anybody’s guess. But historically, Bitcoin’s price has gained positive momentum in the wake of each halving—though typically not right away.
However, a shifting macroeconomic landscape, previous knowledge of how halvings play out, and investment vehicles newly within Wall Street’s grasp make this moment in Bitcoin’s history distinct.
Bitcoin’s “most explosive gains” typically occur 180 days after the halving, VanEck’s Head of Digital Assets Research Matthew Sigel wrote in a recent blog post. On average, Bitcoin’s price has risen 427% from 30 days before the halving to 180 days after. Along those lines, Bitcoin jumped 116% in 2020 from $6,800 to $14,850, the blog post states.
Remember 2020? It’s important to note that Bitcoin’s third halving occurred when monetary policy was hyper-loose as central banks grappled with a pandemic-era slowdown threatening to disrupt the global economy, Dessislava Aubert, Director of Research at the crypto analytics firm Kaiko, told Decrypt.
“The Fed was easing,” she said ahead of this past halving. “For me, the main difference relative to the most recent halving, the one we had in 2020, is the macro environment.”
As U.S. consumer prices soared in 2022, the Federal Reserve stepped in and jacked interest rates at a breakneck pace to tame inflation. Now, monetary conditions are relatively tight, and markets move based on expectations of when the Fed could cut rates—and by how much, Aubert said.
“There are a lot of fears that [the Fed] could cut rates less than three times this year,” she said. “It would be bad for risk assets and probably Bitcoin as well.”
Despite higher interest rates, Bitcoin set a new all-time high price in March amid Wall Street’s embrace of spot Bitcoin ETFs. Attracting billions of dollars of inflows since January, the products that let investors get Bitcoin exposure in traditional brokerage accounts have created an anchor for Bitcoin demand, Coinbase analysts David Duong and David Han wrote in March.
“With major institutional players now capable of taking exposure through these vehicles, Bitcoin’s response to the upcoming halving may not necessarily mirror its performance in prior cycles,” they wrote, adding that stable demand for the products could lead to less volatility.
The volatility that marked previous halvings could be less so, as well, due to the increased experience that Bitcoin miners have in navigating the event, Kaiko’s Aubert said. Typically, some distressed miners are forced to sell Bitcoin as the price of producing it effectively doubles.
“This time around, I think miners are better prepared,” she said. “They have been building liquidity … and the sector has consolidated significantly over the past year.”
The prospect of less distress among miners was shared by Charles Chong, Director of Strategy at the crypto mining and staking firm Foundry, who told Decrypt that miners have had plenty of time to prepare. In some sense, it could showcase how far their overall sophistication has come.
“While the prospect of revenues halving overnight every four years is unparalleled in other sectors, the predictable nature of these events allows for strategic preparation,” he said. “Overall, the halving necessitates a refinement in operations, which could be construed as bullish in the long term by fostering a more resilient and efficient mining landscape.”
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