As we all know, Bitcoin remains superior in terms of market impact. After the recent Bitcoin Pizza Day, the latest discussion swirls around one of the most anticipated events that usually occurs every four years: The Bitcoin Halving.
What is Bitcoin Halving?
Bitcoin Halving is an event that occurs approximately every 210,000 blocks. It is a pre-programmed mechanism in the Bitcoin protocol designed to control the issuance rate and total supply of the cryptocurrency. During the Halving event, the number of new Bitcoins created with each block mined is reduced by half. Initially set at 50 Bitcoins per block, the first Halving in 2012 reduced the reward to 25 Bitcoins. Subsequently, the second Halving in 2016 further reduced it to 12.5 Bitcoins, and so on.
Pricing of BTC on Previous Halvings:
Based on BeInCrypto, historical analysis suggests that there is a significant increase in BTC price after each halving event, with 2020 being the lowest % increase so far, standing at 652%
- 9594% increase in 2013-2014
- 3012% increase in 2016-2017
- 652% increase in 2020-2021
BTC/USD chart by Tradingview from BeInCrypto
Why does it happen?
Bitcoin Halving serves two primary purposes:
First and foremost, it acts as a safeguard against inflation, ensuring that the supply of Bitcoin remains limited. By halving the block reward, Bitcoin becomes increasingly scarce, emulating the characteristics of precious metals like gold. This scarcity, combined with growing demand, has been a significant driver behind Bitcoin's price appreciation over the years.
Secondly, Bitcoin Halving is instrumental in maintaining a predictable and gradual issuance schedule. With a fixed number of Bitcoins to be mined (21 million), the Halving events ensure that the supply is distributed over an extended period. This gradual release prevents a sudden flood of newly created coins that could potentially disrupt the market equilibrium.
How does this affect altcoins?
Any currency other than Bitcoin is called an altcoin. Hence, the event could potentially affect the market in two ways: Positive or Negative, which is generally going to be influenced by many factors including Market Sentiment, and Market Intelligence.
Positive Effect: Bitcoin Halving could potentially increase the cost of altcoins if investors and traders associate the event with a positive sentiment toward all cryptocurrencies. Meaning, that if trades on bitcoin are positive overall, it can spill over to altcoins and eventually generate a more positive price fluctuation.
Negative Effect: If the fluctuations in the Halving event are too sharp and unstable, this might cause investors to become more cautious and wary in trading other cryptocurrencies. Meanwhile, if the trades in bitcoin are also relatively good, the focus might just be on bitcoin and altcoins might suffer in return.
How to prepare for the next Bitcoin Halving Event? (Expected 2024)
- Keep a close eye on the market: Although speculations say that the halving is guaranteed to happen next year - the crypto market is still very volatile and susceptible to change.
Hence, it is important to stay on top of cryptocurrency news platforms, subscribe to newsletters, and join relevant online communities. Being well-informed about any updates or changes leading up to the event will help you make informed decisions - Study Historical Data: Study the price patterns and market behavior of Bitcoin before and after previous Halving events. Although historical data doesn't guarantee future outcomes, it can provide valuable insights into potential trends and market sentiment. Look for patterns, correlations, and any relevant indicators that may help you make informed predictions.
- Diversify Your Portfolio: Consider diversifying your cryptocurrency portfolio to reduce risk. While Bitcoin Halving may create price volatility, other cryptocurrencies may perform differently during this period. Allocating a portion of your investment to other cryptocurrencies or assets can help mitigate potential losses or take advantage of alternative investment opportunities.
- Set Clear Goals and Strategies: Define your investment goals and strategies before the Halving event. As the saying goes “only invest money that you are comfortable to lose.” We do not advise putting your entire life’s savings into the bucket. Determine your risk tolerance, and desired outcomes and establish clear entry and exit points. We highly recommend you read our article about slippage and slippage tolerance, to get you acquainted with the basics of trading and how to minimize trading risk.
- Monitor Market Sentiment: The market after all is affected by how people react to certain news. Analyze social media discussions, and look for market indicators to gauge the overall sentiment. This information can help you better understand market expectations and make informed decisions.
- Prepare for Increased Market Volatility: Bitcoin Halving often introduces increased market volatility, which can result in rapid price fluctuations. Prepare yourself emotionally and financially for potential market swings. Consider adjusting your trading or investment strategies accordingly and avoid making impulsive decisions based on short-term price movements.
- Consult with Experts: If you are relatively new, it is always advisable to invest in professional help to get you started. Look for financial advisors or experts with experience in the crypto market. They can provide guidance based on their expertise and help you make more informed choices.
References:
- https://coinmarketcap.com/alexandria/article/does-bitcoin-really-lift-the-altcoin-market
- https://cointelegraph.com/learn/bitcoin-halving-how-does-the-halving-cycle-work-and-why-does-it-matter
- https://www.binance.com/en/blog/all/why-do-altcoins-fall-when-bitcoin-sets-new-highs-421499824684901154
- https://www.investopedia.com/bitcoin-halving-4843769
- https://beincrypto.com/one-year-before-bitcoin-halving-2024/
