skip to Main Content
 

Bitcoin halving: what is it and does it still matter for traders?

*

Bitcoin halving occurs when the reward for mining bitcoins is cut in half. It happens roughly every four years and is part of a global strategy to regulate the maximum supply of Bitcoins (as opposed to fiat currencies which have an unlimited supply and are prone to losing their value when governments print them in excess).

Each halving reduces the rate of inflation and increases the Bitcoin price as a result. The last halving happened in May 2020 and led to a 533% increase in the BTC price a year after the event. The next halving is supposed to come approximately in the first quarter of 2024,

Does Bitcoin halving still matter?

According to Thomas Kralow, a crypto hedge fund CEO, financial markets expert, and founder of an online learning platform for traders and investors, the halving narrative is dead

“[Bitcoin] halving happens because of the new coins that enter the system through the miners, Kralow explained. “However, the scarcity at a given price comes from the liquid supply of the coins. The more liquid supply we have, the less scarce the coin is. Simply put, if those newly mined coins are a big fraction of a liquid supply — then the halving matters.”

Today, Bitcoin miners collect 300K new Bitcoins per year, which makes the percentage of Bitcoins coming from mining around a mere 5% (as opposed to 20% in 2016). After the next halving, this number will drop to 115K annually, and the percentage in the overall supply will drop to 2.5%.

Basically, with every halving, the percentage of new coins from Bitcoin miners in the overall coin supply is going to drop further and further, having less and less effect on the liquid market supply of the coin.


This time around, Kralow thinks there is likely going to be another big narrative driving the bull market. For example, pivoting the lawsuit against the SEC, the regulation for the crypto industry, or big players that are pouring money into the crypto space and, therefore, driving mass global adoption of Bitcoin. “This will be the narrative that is going to feed the next bull market,” Kralow said.

The banking crisis and Bitcoin

Cryptocurrencies have benefited from the recent confidence crisis in the banking sector and were able to record strong gains during the last two weeks. However, prices could come under some pressure as the crisis seems to be subduing. In addition, traders’ expectations toward a continuation of interest rate hikes in the US could affect sentiment and appetite for risk.

“Since the failure of SVB and other banks, markets have been gyrating between various forecasts regarding the next step in the Federal Reserve’s monetary policy,” said Ahmed Negm, Head of Market Research MENA at broker XS.com.

As a result, cryptocurrency prices could see limited price movements before interest rate decisions and central bank policy will have a bigger impact than before, even perhaps more than halving. Bitcoin could be subjected to strong volatility after big policy moves.

Overall, Bitcoin has been gaining market share to the detriment of other digital assets and could emerge as the clear winner from the current developments. Bitcoin has seen more resilience than stablecoins and has been able to attract more inflows.

Like this article? Sign up to our free newsletter.

This article does not constitute investment advice. Do your own research or consult a professional advisor.

The Armchair Trader's 'How to' Guides

In-depth Reports

Detailed reviews of selected companies and investment trusts.

Thanks to our Partners

Our partners are established, regulated businesses and we are grateful for their support.

Aquis
FP Markets
IG
Pepperstone
WisdomTree
CME Group
Back To Top