The Bitcoin Halving is upon us. The restriction in new BTC supply combined with the same or more demand has historically resulted in BTC hitting all-time highs, taking the rest of the crypto market with it. This time around, however, there are concerns about the pressure that the halving will put on Bitcoin miners, something which could put pressure on BTC’s price and would thus drag down the whole crypto market. That’s why today we’re going to tell you everything you need to know about the Bitcoin halving, including what it is, how it has historically impacted the crypto market, and what it could do this time around. This is an article you don’t want to miss to understand the Bitcoin halving.
What Is The Bitcoin Halving?
You need to know a little bit about Bitcoin, specifically the difference between Bitcoin the network and BTC the asset. The Bitcoin Network consists of blocks of data.
Each block contains BTC transactions and a reference to the previous block, hence the term blockchain. By contrast, BTC is a digital currency used to reward computers called miners for collecting pending BTC transactions, putting them into a block, and then connecting that block to the blockchain. Every time a miner does this, it’s rewarded with some amount of BTC.
Now, this BTC reward comes from two places. The first place is from the coinbase transaction, AKA The Block reward. As a fun fact, this is where the Coinbase exchange gets its name from.
The second place rewards come from is miner tips, AKA the transaction fee. Users will attach a BTC tip to their transactions so they’re included in blocks faster.
As another fun fact, Bitcoin originally didn’t have any transaction fees because most blocks were empty, i.e., they didn’t have any transactions.
As adoption of Bitcoin grew, the transactions increased, resulting in people attaching tips to ensure that their transactions were included in new blocks. Keep that in mind for later.
Whereas transaction fees are variable, the block rewards are fixed at the protocol level. In other words, the creation of new BTC is pre-programmed. When the first Bitcoin block was mined in January 2009, the block reward was 50 BTC. Today, the block reward is, or rather will be, just 3.125 BTC.
This is because of something called the Bitcoin halving, which cuts the amount of BTC awarded in each block by half every four years.
The first halving happened in November 2012, the second in July 2016, the third in May 2020, and the fourth halving is happening well, now.
In practical terms, this means that the rate at which BTC is being created is cut in half every 4 years.
Now, as basic economics dictates, a reduction in supply with the same or more demand results in an increase in price. In this case, a 50% reduction in supply should result in BTC’s price doubling after each halving. Historically, though, the increase in BTC’s price after the halving has been much more substantial. This is simply because the demand for BTC has simultaneously increased. To put things into perspective, there were a few dozen BTC holders when Bitcoin began. Today, it’s estimated that over 200 million people hold BTC. The result is that BTC’s price has gone exponential. If you read our article about BTC versus gold, you’ll know that BTC has seen a return of roughly 720,000x since its first recorded price of 9 cents in July 2010. As with all assets, BTC’s returns have diminished in percentage terms over time but remain impressive. So, this begs the question of how high BTC will go after the current halving.
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Now, how high BTC will go after the halving depends on the timeframe we’re talking about. For instance, BTC’s returns immediately after the halving have been mixed. After the first halving in November 2012, BTC rallied by around 40%, specifically from $10 to around $14. I know, I know, if only.
Regrets aside, after the second halving in July 2016, BTC crashed by 40%, specifically from around $770 to around $470. As you can see, BTC had rallied aggressively leading up to the halving, suggesting that it was a “sell the news” event in the short term.
And after the halving in May 2020, BTC’s price rose roughly 10%, specifically from around $8,700 to around $9,700. You’ll notice that these gains disappeared one week later, but it’s important to remember the circumstances at the time. There was a pandemic going on and everything got messed up, to put it mildly.
This brings us to the current halving, which is coincidentally occurring in the context of similar global uncertainties, albeit not nearly as dramatic as last time. The difference this time around is that more people are aware of BTC than ever before.
Many have argued that this means the Bitcoin halving is priced in and BTC will see minimal volatility. Conversely, others have argued that the introduction of the spot Bitcoin ETFs has created a steady stream of demand, which combined with the sudden reduction in new supply, would quickly result in explosive price action post-halving. This could very well be the case, but there’s one wild card: the Bitcoin miners.
Obviously, Bitcoin miners want to make money. In practice, this means that the BTC rewards given in each block must be greater than the costs of computing and energy required to mine each block. No profits, no mining.
This is where things get a bit complicated, but also interesting, so pay close attention. Logically, the consequence of cutting the BTC rewarded in each block in half means that the profitability of Bitcoin miners will likewise be cut in half, all else being equal. There have been many reports about how major Bitcoin miners will go under after the halving, but the thing is that all is not equal.
For starters, if BTC’s price is sufficiently high, then most Bitcoin miners could still be profitable even after the halving. Depending on your source, the cost of mining one BTC after the halving could be as high as $100,000.
Chances are that BTC won’t be $100K by the time this article is posted, but consider this: a Bitcoin block is mined every 10 minutes to ensure that this 10-minute block time is maintained, the mining difficulty will automatically change depending on the total amount of computing power on the Bitcoin Network. The more computing power, the harder it becomes to mine BTC, and vice versa.
So, if lots of Bitcoin miners do go offline after the halving because it becomes unprofitable for them to mine BTC, this will reduce the total amount of computing power on the Bitcoin Network.
The result will be that the mining difficulty will decline, which will lower the cost of BTC mining, ensuring that more efficient operations stay online. Put differently, it should just result in more miner consolidation, which could create other issues in the future.
More about that in the description. Now, the bigger question though is how much BTC bankrupt Bitcoin miners will sell. It’s hard to say since most mining operations are private, but we do have a similar precedent.
After Ethereum’s transition from proof of work to proof of stake in September 2022, miners sold tens of millions of dollars of ETH. While these ETH sales by Ethereum miners seem to have suppressed the price of ETH, they didn’t cause ETH to crash.
As such, it’s safe to assume that we could see a similar effect for BTC after its halving. Any miners that go under will sell their BTC, but it may only temporarily offset the buying from the ETFs. Also, keep in mind that Bitcoin transaction fees have been hitting record highs lately.
This is because of new innovations on Bitcoin such as ordinal NFTs and BRC2 tokens, which we covered in another article. If BTC fees stay high or continue to rise, this will lower the risk of BTC being sold by distressed miners.
In summary, then, BTC’s price immediately after the halving is likely to stay roughly where it is and could see choppy price action because of bankrupt Bitcoin miners selling their BTC. But what about the longer-term effects?
Although it’s impossible to predict the future, history once again offers us some guidance here. Roughly one year after the Bitcoin halving in November 2012, BTC hit an all-time high of over $1,100, specifically on November 23rd. This translated to a return of over 100x between BTC’s price around the time of the halving and the top of the first crypto bull market. Roughly one and a half years after the Bitcoin halving in July 2016, BTC hit an all-time high of almost $20,000, specifically in December 2017.
This translated to a return of roughly 30x between BTC’s price around the time of the halving and the top of the second crypto bull market.
Similarly, roughly one and a half years after the Bitcoin halving in May 2020, BTC hit an all-time high of almost $70,000, specifically in November 2021.
This translated to a return of roughly 7x between BTC’s price around the time of the halving and the top of the third crypto bull market. This underscores something I mentioned earlier, and that’s that BTC has seen diminishing returns over time.
This admittedly limited history suggests that BTC’s returns have diminished by roughly a factor of three with each cycle. This means that BTC will top out at around 2.5x relative to its current price. The timing of exactly when this will happen is where things get tricky.
That’s because some have argued that the true top of the third crypto bull market took place in the spring of 2021. They claim that the November 2021 rally was artificial and orchestrated by large players in the crypto industry, namely FTX. If this is correct, then it suggests that BTC will hit its top sometime next spring, as there would be two precedents: the 2012 halving and the 2020 halving. If this is false, then it suggests that BTC will hit its top sometime next summer or autumn, as there would again be two precedents: 2016 and 2020. The silver lining to this complicated precedent is that it still provides a range within which the BTC top could occur, specifically between April 2025 and October 2025. This range should be enough to know roughly when BTC has peaked when you combine it with the price target of 2.5x from today.
There’s just one caveat, and that’s that it’s possible that the approval of the spot Bitcoin ETFs has changed BTC’s market dynamics. Many have argued that the ETFs have unlocked a previously untapped source of capital, which could flow into BTC and take its price much higher than what many have in mind. More importantly, it’s possible that these ETF flows will limit how much BTC will crash after the next cycle top is in. For context, BTC has historically fallen by over 70% from top to bottom. It’s possible that this drawdown will be much lower once more experienced hands start holding more BTC. If it’s not the ETFs that do it, then buying by central banks could do the trick instead. For reference, central banks will be allowed to hold up to 2% of their balance sheets in crypto starting from the 1st of January 2025. The Central Bank of Switzerland actually noted in 2022 that it would be open to buying BTC someday.
And come to think of it, it’s quite possible that a big BTC buy by a major central bank will be the catalyst that will mark the top of BTC’s price. Alternatively, it could mark the beginning of the blow-off top phase of the crypto bull market cycle, the same way that MicroStrategy buying BTC in the summer of 2020 did. This ties into how the rest of the crypto market could respond to the Bitcoin halving. This can be assessed by looking at how BTC dominance changed after the halving.
For those unfamiliar, BTC dominance measures how much of the total market cap of all cryptocurrencies is made up purely of BTC. Unfortunately, BTC dominance doesn’t go all the way back to the first Bitcoin halving in November 2012. That’s likely because altcoins were only just starting to emerge back then and didn’t have a significant share of the total market. For what it’s worth, this is likely irrelevant as crypto market infrastructure was also nascent. In any case, what’s fascinating is that BTC dominance fell roughly 4% after the second Bitcoin halving in July 2016. This suggests that there was some rotation out of BTC and into altcoins. This is fascinating because BTC’s strength relative to altcoins didn’t recover even after BTC crashed 40%.
To clarify, BTC is seen as the safe haven in crypto, so a 40% crash in BTC’s price should have resulted in a rise in BTC dominance as the rest of the crypto market would have also fallen and fled into BTC. The absence of this dynamic could likewise be a consequence of the crypto market still being relatively immature. Regardless, BTC dominance fell sharply during the 2017 crypto bull market, specifically by 60%, down to around 40% of the total crypto market cap. Naturally, this happened near the top of the 2017 cycle, specifically in December 2017. This highlights the levels of altcoin speculation happening around that time.
After the third Bitcoin halving in May 2020, BTC dominance likewise saw a decline, specifically by 14%. Notably, this was a decline of 3x more relative to after the second halving. This likewise suggests that there was an even larger rot out of BTC and into altcoins immediately after the third halving. As in 2017, BTC dominance fell sharply during the 2021 crypto bull market, specifically by around 35%, down to around 40% of the total crypto market cap. Unlike in 2017, this happened much sooner in the cycle, specifically in the spring of 2021, and lasted all the way until the spring of 2022. This suggests that the rotation into altcoins was more sustained compared to the 2017 cycle, which makes sense given that most altcoins arguably didn’t have any meaningful utility until 2021.
This admittedly limited history suggests some very peculiar dynamics for altcoin dominance during this cycle. Basically, it suggests that BTC could see a big drop in dominance of up to 40% after the halving but could see a much smaller drop in dominance of around 10% as we approach the next cycle top. It also suggests that altcoins could have a lot more staying power during the next crypto bull market. The initial 40% drop in BTC dominance sounds crazy until you remember two things: stablecoins and the spot Ethereum ETF. The market cap of stablecoins will grow a lot as the next crypto bull market approaches, and ETH will run once spot Ethereum ETFs are approved, assuming they are approved, of course.
And this all relates to how much altcoins could rally and for how long. In case it wasn’t clear enough, altcoin prices are highly correlated to BTC’s price. Altcoins perform the best when BTC’s price is trading sideways or rising gradually as it causes traders to get bored and start aping into more speculative cryptos. So, the way you may want to look at this is by using traditional stock market metrics to compare altcoin returns to those of Bitcoin. More specifically, you can view altcoins as having a certain beta to Bitcoin, more volatility relative to BTC. As a rule of thumb, altcoins with market caps of more than $1 billion have a beta of two relative to Bitcoin, altcoins with market caps of less than $1 billion have a beta of up to four, and altcoins with market caps of less than $100 million have a beta of roughly eight compared to Bitcoin.
So, if BTC’s price goes up by 2.5x between now and the cycle top, then some large-cap altcoins should eventually go up by around 5x, some mid-caps should eventually go up by around 10x, and some small caps should eventually go up by around 20x. Again, this is a rule of thumb, not a guarantee for all. I also need to stress the word “eventually.” These gains won’t come right away, nor will they necessarily happen at the same time for all altcoins. It also goes without saying that it won’t be up only. There will be massive corrections along the way, and these will become sharper as we approach the cycle top.
And if our BTC dominance predictions play out, then it means that altcoins could spend a lot more time at or around their all-time highs compared to previous cycles. It could also mean that they will see similar drawdowns relative to previous cycles during the next crypto bull market. The catch is that this may only apply to larger, more established altcoins such as Ethereum, which will have spot ETFs of their own and could, therefore, experience the kinds of dynamics I mentioned earlier: highs that surprise to the upside, less volatility to the downside, and potentially propped up by central banks.
So, if you want to make sure you don’t miss out on these gains, then there are three things you need to do. The first is to understand which narratives are likely to be the biggest during the next crypto bull market. We wrote an article about that not long ago, which we’ll leave down in the description. The second thing you need to do is make sure that you have accounts on the right crypto exchanges. And as it so happens, the Coin Bureau Deals page has trading fee discounts of up to 60% and sign-up bonuses of up to $60,000 on the best crypto exchanges. These deals will help you preserve profits, and they’re only available for a limited time, so do take advantage of them ASAP using the link in the description.
Now, the third thing you need to remember is what I mentioned a few moments ago, and that’s that not all altcoins will rally at the same time. So, if you see that some cryptos in a narrative are starting to rally hard, don’t chase them. Instead, try to find cryptos in that narrative that haven’t rallied yet. Similarly, if you notice that the cryptos in your portfolio aren’t keeping up with the rest of the crypto market, be aware that it could just be because they’re lagging. Make no mistake, there could be some cases where those cryptos won’t ever rally, but if you’ve done your research, this hopefully shouldn’t happen.