Bitcoin halving 2024: What opportunities are opening up for investors?

The Bitcoin halving expected to take place this April will have a significant impact on the cryptocurrency market and is attracting attention from investors worldwide. This event occurs every 4 years and is a crucial moment in the lifecycle of the world's first cryptocurrency, Bitcoin.

From the 2022 period until now, Bitcoin has surged more than 300% to nearly 69,000 USD (at the time of writing), boosting its market cap to over 1.3 billion USD - double Tesla - making the upcoming halving attract even more attention from investors worldwide than ever before.

In this week's article, Viet Hustler will delve deeper into the Bitcoin halving event, the halving process, and how Bitcoin halving impacts investors.

What is Bitcoin halving?

Satoshi Nakamoto - the mysterious father of Bitcoin

In 2007, the economy entered a recession phase, compounded by the collapse of Lehman Brothers bank in 2008, which sparked the first economic crisis of the 21st century, leading to the collapse of the stock market and a series of major banks and corporations.

At this time (precisely October 2007), Bitcoin was first mentioned in an article by author Satoshi Nakamoto, aimed at countering inflation risks related to fiat currency (due to banks increasing the money supply).

• Read more: The difference between fiat currency and crypto-currency.

Satoshi Nakamoto - a mysterious figure whose information remains unclear to this day. According to the scant profile on the P2P Foundation page, this person claims to be from Japan, born on 04/05/1975; however, the flawless use of English + activity hours opposite to those in Japan keep his identity a mystery.

• FYI: There is a rumor that 4 major Japanese tech companies were once thought to be the father of Bitcoin, as combining their names results in Satoshi Nakamoto.

What is Bitcoin halving? When will all Bitcoin be "mined"?

Bitcoin halving is an event that occurs every 4 years, based on the "halving" principle of the Bitcoin issuance/mining process:

Name Bitcoin halving originates from: every 4 years, the reward (in Bitcoin) generated for mining every 210,000 blocks of encrypted transactions that create Bitcoin (mining reward) is cut in half.

• Initially, the reward after mining one block was 50 BTC and gradually halves after each halving cycle.

• This reduction in rewards helps limit the amount of Bitcoin created — a way to prevent Bitcoin from being "inflated".

• However, this method can also make Bitcoin "rarer" — driving up the price of Bitcoin.

So when will all Bitcoin be mined?

• Bitcoin (BTC) has a fixed supply of 21 million.

• The reward system will automatically activate until the supply reaches the maximum.

As of August 2023, the circulating supply of BTC is over 19.46 million out of a total supply of 21 million. Therefore, based on the 4-year halving process, the last Bitcoin is expected to be mined around the year 2140.

In other words: The halving process will stop after 32 times, when all 21 million BTC have been mined and circulated.

• Bitcoin at that point will be like a nominal market like other currencies.

Who decides the timing of Bitcoin halving?

• Bitcoin halving is part of the "Bitcoin monetary policy".

• At the time of Bitcoin's creation, Satoshi Nakamoto also could not predict how many people would use this cryptocurrency, and there is no specific explanation for the "halving" formula above.

• Satoshi briefly outlined the scenario where Bitcoin could be deflationary or inflationary, and maintaining a constant ratio is the best way.

  • With fiat money, the Central Bank will have the power to increase or decrease the amount of money in circulation.

  • However, Bitcoin is a decentralized currency and not under the control of any individual or single group.

  → Halving reduces the rate of Bitcoin creation → Creates scarcity → Strongly impacts the price when any event occurs.

Bitcoin halving process:

1. Halve the reward: The default reward for new blocks will be halved.

2. Reduce inflation: Reducing the reward slows down the supply of new Bitcoin to the market → Reduces inflation.

3. Reduce supply, increase demand: Reduced rewards will cause Bitcoin supply to decrease accordingly, potentially leading to increased demand and increased Bitcoin value.

4. Bitcoin price increases: When Bitcoin's value increases, halving the reward will not affect miners' efforts, contributing to protecting the system.

   → This is the key driver behind the upward momentum of Bitcoin and cryptocurrency.

Another hypothesis about Bitcoin halving and the finite supply of 21 million coins is that it encourages users to hold rather than spend so that Bitcoin's value will increase over time (store of value).

Some data on inflation reduction based on the “halving” mechanism when issuing new Bitcoin:

• Block rewards continuously decrease as supply slows after each halving.

• Bitcoin inflation rate decreases thanks to the halving mechanism:

  • In 2011, Bitcoin's inflation rate reached 50%, then gradually decreased to 4-5% in 2016.

  • Currently, the inflation rate is only 1.74%. 

Impact of Bitcoin halvings

The next halving is expected to occur this month, when the number of blocks reaches 740,000.

• The exact halving date has not yet been determined due to varying new block creation times.

• On average, a new block is created every 10 minutes.

Bitcoin price fluctuations:

• First halving (2012): BTC rose from 12 USD to over 1,000 USD (end of 2013).

• Second halving (2016): BTC rose from 650 USD to nearly 20,000 USD (12/17/2017).

  • After that, BTC fell to 3,716 USD within 1 year (12/17/2018) but still ~570% higher than before halving.

• Third halving (2020): BTC rose from 8,000 USD to 69,000 USD (November 2021) ~610%.

Observations show a common pattern:

Bitcoin price surges after each halving, then drops sharply (market correction) but remains higher than before the halving (due to limited supply).

So, should we expect another price surge in the upcoming halving?

• In reality, there is no solid evidence that previous halvings caused Bitcoin's price to surge strongly.

  • The most common reason for the surge in Bitcoin price this year is SEC's approval of Bitcoin ETF funds + expectations of central banks cutting interest rates.

• Bitcoin price has been less volatile in recent years.

• Growth in Bitcoin trading volume on exchanges has also slowed down.

  → Bitcoin Spot ETF funds are creating a more stable new source of demand.

How are investors and miners affected by Bitcoin halving?

Investors can benefit after halvings

• As shown in the statistics above, although there is no definitive research, after each halving, Bitcoin price tends to increase, so investors can benefit from this event.

Miners: Quite complex and unpredictable impact

• Reduced mining rewards: Bitcoin halving directly affects miners' mining profits in the short term (due to reduced block rewards).

  • However, halving helps maintain Bitcoin's value and scarcity.

    → If BTC price increases after halving, miners may have even higher profits than before.

  • When all Bitcoin is mined, miners will receive transaction fees to continue maintaining the system operation.

    • Transaction fees have recorded strong increases before each halving.

      

• Impact on mining difficulty: Bitcoin automatically adjusts mining difficulty based on the number of miners + computing power.

  • However, after halving, mining difficulty will evolve according to the following cycle:

    When rewards are halved (halving)

    → Some miners may give up due to low rewards while mining is quite difficult

    → Difficulty decreases → Income of remaining miners increases → New miners join → Difficulty increases → New equilibrium is established.

• Impact on Bitcoin network security: When mining rewards decrease and fewer miners participate → Hash power concentrates in fewer people → Network vulnerable to 51% attack.

  • If BTC price doesn't rise fast enough, some mining machines may become unprofitable and forced to stop operating. 

    • However, Bitcoin's decentralized network ensures no miner controls more than 50% of total hash power → Manipulating the blockchain becomes extremely difficult and costly.

Some predictions about 2024 Bitcoin halving

Investors agree that Bitcoin price will increase after halving.

• Mark Yusko (Morgan Creek Capital) predicts Bitcoin will reach 150,000 USD by the end of this year.

  • After halving, many people will fear missing out on the market.

• PlanB (famous analyst for Stock-to-Flow S2F model) says BTC price will rise to 532,000 USD after halving in 2025.

• Anthony Scaramucci (SkyBridge) is also optimistic about the expected price target of 170,000 USD in 2025, thanks to the upcoming halving event.

Conclusion

Bitcoin halving, which halves the rewards for Bitcoin miners, can directly impact mining profits, forcing companies to adapt and develop more efficient mining strategies. Historical statistics also show that halving cycles have a significant impact on Bitcoin price.

To date, Bitcoin remains the world's largest cryptocurrency (in terms of popularity and market cap), this important event can also impact the entire cryptocurrency market in general and is a concern for most crypto investors.

Bitcoin halving is also an event marking milestones in the total Bitcoin supply in circulation. Currently, 90% of total Bitcoin supply has been mined, with 900 Bitcoin mined per day. As long as halving continues (estimated to end around 2140), the increasingly scarce Bitcoin supply pushes the price to new highs continuously, investors still have the opportunity to profit from this cryptocurrency.

References:

1. MARYANNE MURRAY Maryanne Murray, “Blockchain explained”, Reuters, June 15, 2018.

   https://www.reuters.com/graphics/TECHNOLOGY-BLOCKCHAIN/010070P11GN/index.html

2. Payal Shah, “Bitcoin Halving 2024 – This Time It’s Different”, April 3, 2024.

   https://www.cmegroup.com/articles/2024/bitcoin-halving-2024-this-time-its-different.html

3. Luke Conway, “What Is Bitcoin Halving? Definition, How It Works, Why It Matters”, March 06, 2024.

   https://www.investopedia.com/bitcoin-halving-4843769