The Bitcoin halving that is about to occur is unlike any previous ones, and investors should take note of the following information.

The Bitcoin halving was once a celebrated feature among early cryptocurrency enthusiasts who saw it as a defining characteristic of a revolutionary, anti-establishment deflationary asset.

Bitcoin, now accepted by major Wall Street institutions, continues to attract retail investors. As crypto market observers anticipate the upcoming "halving," they believe it will have a positive impact on bitcoin.

The Bitcoin network hosts a technical event approximately every four years, reducing the cryptocurrency's supply by half, creating a scarcity effect similar to "digital gold." This event typically marks the beginning of a new cycle and bull run. However, this particular event is unique.

"According to Antoni Trenchev, co-founder of Nexo, the 2024 iteration of the Bitcoin halving will be even more exciting due to the combination of reduced supply and increased demand from fresh ETFs. However, this halving is unique because Bitcoin has already surpassed its previous high before the event, making it more challenging to predict the length and intensity of this cycle."

Since the 2012, 2016, and 2020 bitcoin halvings, the price has increased by approximately 93x, 30x, and 8x, respectively, from the halving day price to the cycle top. However, it's important to note that past performance does not guarantee future results, and some experts predict that the impact of the halving on the bitcoin price may decrease as the supply becomes smaller every four years.

Swan Bitcoin's head of private clients and family offices, Steven Lubka, stated that this year is the ideal time to be optimistic about returns, given the current market conditions.

According to Trenchev, the current bitcoin bull cycle, which began in January due to the approval of spot ETFs, may be shorter and more intense, leading to a peak in late 2024 or early 2025.

To gain a greater comprehension of bitcoin as a novel, deflationary asset, or to speculate on its price in the near future, it is essential to understand the halving and its potential influence on the market.

What's happening?

The Bitcoin blockchain mandates a halving of incentives for miners every 210,000 blocks, which is approximately four years.

The machines that record new blocks of bitcoin transactions and add them to the global ledger are operated by miners.

Miners are motivated to mine bitcoin for two reasons: voluntary transaction fees paid by senders for quicker settlement and mining rewards, which include 6.25 newly minted bitcoins or approximately $437,500 as of Thursday morning. Between April 18 and April 21, the mining reward will decrease to 3.125 bitcoins. The initial incentive was 50 bitcoins, but it was reduced to 6.25 in 2020.

The reduction in block rewards results in a decrease in the creation of new bitcoins, which contributes to the maintenance of the idea of bitcoin as a valuable digital asset with a limited supply. Ultimately, the total number of bitcoins in circulation will reach 21 million, as specified in the Bitcoin protocol.

Market impact now and later

The halving isn't like a binary switch that turns on or off at a specific time; it's likely that the market will continue without significant action. However, there may be volatility caused by speculators trading on the event. Swan's Lubka advised investors not to mistake this for the technical change occurring.

"Even if there were a big move, it wouldn't affect the halving mechanically. Nevertheless, in the coming months, $30 million in bitcoin will be sold daily, which can have a significant impact over time."

That $30 million assumes a bitcoin price of about $70,000.

Miners sell a significant portion of the bitcoin they receive as payment to cover their daily expenses, which is a crucial factor for investors to consider when evaluating the potential impact of the halving on the market, according to Lubka.

"Mining bitcoin is an expensive process that requires a significant amount of energy and resources. To cover these costs, miners frequently sell the bitcoin they mine. If the revenue from selling bitcoin is cut in half, miners will have to sell half as much bitcoin, leaving them with less revenue to cover their costs."

"Miners are the most regular sellers," he stated. "Some hedge fund may sell its position, but miners consistently sell every day, every week, and every month in a predictable quantity. This pressure is cut in half."

Diminishing returns from halving to halving

The halving of Bitcoin has always led to a surge in its value, making it a highly anticipated event among enthusiasts. However, with each subsequent halving, the mining reward and supply of Bitcoin have decreased, resulting in a decrease in the returns from the halving day to the cycle top.

""Bitcoin's post-halving bull runs have seen diminishing returns, with even a 2x increase putting it around $130,000, which is not to be ignored," said Trenchev."

Although it wouldn't be due to the planned supply shock, the new demand shock could reverse that trend this year, Lubka said, as the demand for bitcoin has increased significantly thanks to the launch of bitcoin ETFs, according to CryptoQuant.

Historically, "whale" demand for bitcoin has driven prices higher after each halving. However, this year, whale demand, including OG bitcoiners, new investors, and bitcoin ETF holders, is already at an all-time high, and the block reward hasn't even been slashed yet.

"Bitcoin halving's impact on prices has decreased, as the new issuance of bitcoin is smaller compared to the total amount of bitcoin available for sale, according to Moreno. However, bitcoin demand growth appears to be the primary factor driving higher prices after the halving."