Bitcoin
See how the Bitcoin halving is happening
The recent Bitcoin halving event generated a fascinating mix of historical echoes and innovative developments.
Bitcoin (Bitcoin 0.32%), the world’s first and best-known cryptocurrency, has experienced significant milestones and events throughout its history. Among these, the scheduled reduce by half The events stand out as pivotal moments that profoundly impacted the supply and demand dynamics of cryptocurrency.
Let’s explore the recent Bitcoin halving and how it compares to previous ones. There are similarities and differences between halving cycles, so let’s see what this all means for investors.
Image source: Getty Images.
Similarities to previous halves
The similarities between the recent Bitcoin halving and its predecessors are relatively simple. Like previous halvings, this event halved the reward for Bitcoin mining, effectively halving Bitcoin’s inflation rate and changing its supply and demand dynamics.
However, despite the clear effects that halving has on Bitcoin’s fundamentals, its impact on the price is rarely immediate. As with previous halvings, Bitcoin is experiencing sideways trading or even slight price drops in the months following the event.
Since the recent halving, Bitcoin price has exhibited similar price movements. It hovered around $63,000 at the time of the halving, experienced a small sell-off, and subsequently recovered some of those losses. This pattern of post-halving price volatility is consistent with historical trends, with such fluctuations lasting between two and four months.
Differences in this half
While there are several similarities to previous halvings, two glaring differences set the recent halving apart. First, Bitcoin reached an all-time high before the halving, a scenario unprecedented in previous halvings. The approval of spot Bitcoin ETFs in January contributed to significant purchasing activity. At one point, Bitcoin purchasing volume was 10 times the daily issuance rate, pushing the price of Bitcoin above $73,000 in late March.
In part, the subsequent price decline can be attributed to profit-taking following the hype surrounding the ETF approval and halving event. Network data shows that long-term Bitcoin holders have realized the biggest profit-taking since the start of 2021, causing its price to subsequently decline. This is a side effect of converting many paper profits into real cash earnings.
Second, and probably most important, is the significant decline in Bitcoin’s inflation rate, which now sits at an unprecedented low of 0.85%. At this level, Bitcoin’s inflation rate has officially dropped below what many believe to be the superior hedge against inflation: gold.
The importance of this achievement cannot be overstated. Solidifies Bitcoin’s position as digital gold, offering superior protection against the erosive effects of inflation. Inflation is eroding the purchasing power of traditional fiat currencies and even physical assets like gold, which are inflated by mining activities. In contrast, Bitcoin’s ability to maintain a lower inflation rate underscores its resilience and attractiveness as a long-term store of wealth. This historic milestone and future halvings will further cement its status as a premier asset on the global financial stage.
Long-term optimism amid short-term volatility
Investors should temper their expectations for near-term gains following the recent halving, as Bitcoin’s price may continue to experience volatility in the coming months. However, there are solid reasons for serious long-term optimism.
Historically, in the year following the halving, Bitcoin rose more than 400% and reached new all-time highs. Although Bitcoin has already reached a new all-time high, the effects of this halving, combined with increased demand for recently approved spot Bitcoin ETFs, could put significant pressure on its supply in the long term.
While the exact trajectory of Bitcoin’s price remains uncertain, there are factors in place for this halving to treat Bitcoin as favorably, if not better, than previous halvings. However, investors should be patient and view any short-term dips as opportunities to allocate some funds to this transformative digital asset. Rest assured, just as the days of a sub-$10,000 Bitcoin are long gone, a sub-$100,000 Bitcoin should soon be a distant memory.