Exploring Bitcoin Halving: What Happened in the First Three Times?

In the past decade, Bitcoin has not only evolved from a niche hobby to a new generation of investment products pursued globally, but it has also challenged the concepts and status of traditional currencies, providing us with a completely new way to think about wealth, value storage, and transactions.

Today, Bitcoin has crossed the $70,000 mark. In this process, a unique and crucial mechanism has played a key role—Bitcoin halving. Each time before and after a Bitcoin halving, there are significant fluctuations in the market, which also sparks widespread discussions and predictions among crypto players about the future price trends of Bitcoin.

As we approach April 2024, Bitcoin is set to undergo another halving, and market attention is heating up once again. Whether investors, analysts, or individual players, everyone is trying to interpret the potential impacts of this event.

Bitcoin Halving

Bitcoin halving refers to the event where the reward for miners in the Bitcoin network for mining new blocks is cut in half every four years. This mechanism was embedded in the code from the very beginning of Bitcoin's design.

According to Bitcoin's economic model, its maximum supply is capped at 21 million. This supply limit is predetermined by an algorithm, aiming to mimic the physical constraints of rare resources like gold, creating a form of digital scarcity.

The halving mechanism further enhances Bitcoin's scarcity in terms of issuance and inflation rate. Through this mechanism, the new supply rate of Bitcoin slows down linearly, ultimately reaching this supply cap around the year 2140.

This supply limitation and halving mechanism work together to ensure that Bitcoin does not depreciate due to unlimited issuance, which is quite unique compared to traditional fiat currencies. In traditional economic systems, central banks can influence the economy by adjusting the money supply, but this can also lead to inflation. In contrast, Bitcoin's mechanism provides it with an immutable, predetermined inflation path, serving as the cornerstone of its economic model, ensuring its long-term value and stability, and increasing the appeal for long-term investment and value storage.

Halving Cycle

Although we usually say that Bitcoin halving occurs approximately every four years, it is not calculated based on a fixed time cycle but is determined by the block generation rate of the Bitcoin network.

According to the Bitcoin white paper, a halving occurs every time 210,000 blocks are generated since the launch of the Bitcoin network. Typically, the Bitcoin network produces one block approximately every 10 minutes, leading to the calculation of about once every four years. However, if there are network congestion issues or prolonged block generation delays, the halving time will also be affected accordingly.

Currently, Bitcoin has experienced three halvings, occurring in 2012, 2016, and 2020, with the next one expected in April 2024.

Halving Observations

Based on the market changes before and after the previous three halvings, it seems that the halving event can promote an overall increase in the value of Bitcoin and the crypto market. Therefore, this periodic event has become not just a part of Bitcoin's economic model but also an important moment for market participants to monitor and predict Bitcoin's value fluctuations and overall market trends.

Here are the key details of the previous three halvings compiled by the author:

First Halving

Halving Date: November 28, 2012

Halving Details: The reward for each Bitcoin block was reduced from 50 BTC to 25 BTC.

Market Changes: In the months leading up to the halving, Bitcoin's price began to rise steadily. From May to August, the price increased to $11, but there was a slight pullback in September, dropping to $10. It then continued to rise to around $13 after the halving. Subsequently, the price steadily increased over the following months, soaring to over $1,100 by the end of 2013.

Second Halving

Halving Date: July 9, 2016

Halving Details: The reward for each Bitcoin block was again reduced to 12.5 BTC.

Market Changes: At the beginning of 2016, Bitcoin's price was around $430. Before the halving, the price rose to a peak of about $750, followed by a slight pullback to $600 by the end of June. After the halving event, Bitcoin continued to show an upward trend, reaching a historical high of about $20,000 by the end of 2017.

Third Halving

Halving Date: May 11, 2020

Halving Details: The reward for each Bitcoin block was reduced to 6.25 BTC.

Market Changes: This time was slightly different from the previous two. Before the third halving, Bitcoin's price fluctuated between $7,000 and $10,000, dropping to a low of $5,500 in mid-March. However, the price began to rise steadily afterward, rapidly climbing from October and nearing $30,000 at the beginning of 2021, eventually reaching about $64,000 in April 2021.

From the above three halvings, we can clearly see that each Bitcoin halving event is accompanied by a certain degree of market volatility. This is because halving usually raises investors' expectations regarding the future scarcity of Bitcoin, thereby driving up prices before the halving. It is worth noting that there is often a significant price correction before the halving, but this does not affect the subsequent upward price trend. After the halving actually occurs, market reactions vary, and price surges do not happen immediately after the halving—there is typically a delay of several months.

Of course, market trends also need to be assessed based on other factors, such as the global economy, regulatory environment, etc. For instance, the third halving occurred at the beginning of a bull market, with the global economy starting to rise, leading to a significant price explosion later on. However, in the long run, halving events are indeed a key driving force behind the upward trend in Bitcoin prices.

Fourth Halving

Based on current market sentiment and analysis, most people hold an optimistic view regarding the Bitcoin halving in 2024, believing it will further drive up its price. Historically, Bitcoin has seen significant price increases after each halving, and this time the market generally expects Bitcoin's price to reach between $150,000 and $200,000 by 2025. This optimistic sentiment reflects the crypto market's response to the increasing scarcity of Bitcoin and expectations for rising future demand.

Reports from Bernstein and other institutions further support this optimistic outlook. Bernstein even raised its year-end Bitcoin price forecast to $90,000 in a report on March 21, predicting it could reach $150,000 by mid-2025. Additionally, a survey conducted by The Block involving nearly 10,000 crypto investors showed that about 84% of respondents predicted that Bitcoin would reach new highs after the halving, indicating widespread confidence in Bitcoin's future performance.

However, not everyone is optimistic about Bitcoin's future. Analysts at JPMorgan predict that Bitcoin's price could drop to $42,000 after the halving due to reduced mining rewards and rising costs. This prediction is based on concerns over increasing mining costs and potential decreases in profitability.

Institutions like 21Shares and Coinbase have also conducted in-depth analyses of Bitcoin's trajectory post-halving. They believe that despite some uncertainties in the market, Bitcoin still has enormous growth potential in the long run. In particular, Coinbase emphasized the significant impact of the emergence of a U.S. spot Bitcoin ETF on the market, suggesting it would create new support for Bitcoin demand, helping to stabilize or even push up its price.

Conclusion

As Bitcoin approaches its fourth halving, the market is filled with various predictions and analyses, reflecting investors' differing views on the future. From optimism to caution, from technical to fundamental analysis, Bitcoin's halving is undoubtedly one of the most watched events in the cryptocurrency space. Despite the many uncertainties.

Although history shows that halvings often bring long-term positive effects to Bitcoin and the entire crypto market, as investors, we still need to remain vigilant, respect risks, and consider multiple factors before making decisions, including the global economic situation, changes in regulatory policies, and advancements in technology.