Bitcoin: What can we expect after the Halving?

Halving is an event that occurs on the Bitcoin blockchain every 210,000 blocks, i.e. approximately every 4 years, and marks the start of a new cycle for the blockchain. On April 20^th, we experienced the 4th halving, marking the start of the 5th Bitcoin cycle. When a halving occurs, the Bitcoin reward for mining each block is divided by 2. This change has important consequences not only for the miners in charge of securing the blockchain, but also for all Bitcoin holders and future acquirers. Here, we take a closer look about what happened during Bitcoin's previous halving cycle, and the environment that accompanies this new cycle. 

Impact on miners 

As previously stated, halving results in a reduction by half of the bitcoins awarded as rewards to the miner who validates a block. This 4th halving has reduced the reward from 6.25BTC/block to 3.125BTC/block. As a reminder, the maximum number of bitcoins in circulation is 21 million, and on April 20, at the time of the halving, there were 19.687 million bitcoins in circulation. 

At the same time, the mining complexity of a new block is adjusted every 2016 blocks to ensure that, on average, a block is mined every 10 min. The difficulty of mining the blockchain depends on the overall computing power allocated to mining, known as the hashrate. In other words, the more resources allocated to securing the Bitcoin blockchain, the greater the mining difficulty, and vice versa. Observation of the hashrate also makes it possible to quantify the level of security of the Bitcoin blockchain. 

Ultimately, the main aim of halvings is controlling the total quantity of bitcoins ever created by reducing the quantity of bitcoins created over time.  

And it has consequences for miners, who must balance between the cost of mining, which includes the price of the electricity used, and the reward obtained by securing the network. Indeed, mining requires significant investment in mining-specific machinery, as well as high electricity costs.  

Rising electricity price over the past 2 years has had a major impact on the profitability of both individual and corporate Bitcoin miners. On the other hand, the revenues generated by mining (block rewards and transaction fees) continue to rise significantly, justifying the interest in the activity.  

Market reactions 

From a more general point of view, halving Bitcoin inflation means that the new supply available is much reduced. In other words, for the same demand, halving stimulates scarcity and a potential rise in the price of Bitcoin. 

In previous cycles, we've observed recurring similarities that would suggest the future behavior of this cycle. However, this cycle has already shown its peculiarities by reaching an ATH (All Time High) a few weeks before halving, which is something new for the Bitcoin price, which tends to reach its ATH after halving. 

The institutionalization of Bitcoin, encouraged by the approval of ETFs in the US and in Asia, is an important factor to be considered in this new cycle, giving Bitcoin and crypto even more credibility as an asset class and considered by many as an alternative asset hedging against inflation. 

In fact, the willingness of institutional investors to gain exposure to Bitcoin has resulted in strong buyer demand, boosting the BTC price. Last April, Blackrock and Fidelity ETFs held the equivalent of $29B worth of BTC, or 4.25% of supply. 

However, 1 month after this 4th Halving and BTC at 64€K, the uptrend has slowed considerably. We are still not seeing any upward movement in the BTC price, which is stagnating. The global geopolitical context and an economic situation unfavorable to investment in risky assets are arguments put forward to justify this.  

The decline in Bitcoin's volatility is accompanied by ever-decreasing performance, cycle after cycle.  

Although Bitcoin's past performance in no way foreshadows its future, we can expect Bitcoin to continue its upward trend, and to establish itself over time as a traditional asset, thanks to its unique structure and the growing interest of new traditional players.