2024 Bitcoin halving: The start of a new era?

Mar 27, 2024

Since Bitcoin's inception in 2009, we have experienced three so-called block reward (or simply Bitcoin) halvings. In one of our previous explainers, we've taken a close look at Bitcoin halvings, and we recommend you take a look at the easy-to-read deep dive if you haven't already.

As the April 2024 halving is on our doorstep, we will look at its specifics, what events surrounded it, and explore the best way investors can navigate the dynamic landscape.

What is the Bitcoin halving?

The Bitcoin halving mechanism is a predetermined event programmed into the Bitcoin protocol, occurring approximately every four years or every 210,000 blocks. This process involves reducing the reward miners get for verifying transactions in half, effectively halving the rate at which new bitcoins are created. The purpose of this mechanism is to control the inflation rate of Bitcoin and ensure a gradual and predictable issuance schedule, ultimately leading to a capped supply of 21 million bitcoins. By reducing the rate of new supply entering the market, halvings reinforce the scarcity of the cryptocurrency, driving up demand and usually impacting its price.

Price development

In late 2022 and most of 2023, Bitcoin's price has mostly stagnated, dropping to as low as under $17,000. After a brief period of volatility, it stabilized around $40,000 by the end of 2023 before climbing to a neighbourhood of $70,000 as of March 2024, even reaching its all-time high in the process. Some analysts predict prices could hit $125,000 to $150,000 per Bitcoin in the months following the halving.

The 2022 price dip can be explained by events such as the FTX crash, however, it also could be part of the natural "biorhythm" that we can generally see throughout the coin's history. It being still a relatively young asset, volatility and sensitivity to many variables need to be considered, and any price predictions therefore have to be taken with a grain of salt. Nevertheless, certain trends are more clear than others when looking at Bitcoin's development, and halving is one of them.

Bitcoin price development around halving events. Source: bitbo.io

Why does the price increase around halving?

Bitcoin halving has historically correlated with significant price increase. This can be attributed to the basic economic principle of supply and demand. As the rate of issuing new Bitcoins decreases, the available supply becomes scarcer. And as with most assets, scarcity boosts value.

You can think of it similarly to gold – as its supply on Earth decreases over time, it becomes more difficult and costly to mine. As a result, both the new and existing gold in circulation becomes more valuable as less and less new gold enters the market.

Moreover, halving events often serve as a catalyst for positive market speculation and investor optimism, driving further price increases in anticipation of the event.

Specifics factors in play

Several factors contribute to the unique dynamics surrounding the 2024 halving. One prominent factor is the approval and launch of Bitcoin Spot Exchange-Traded Funds (ETFs) in the United States by major investment companies such as BlackRock or Fidelity. While ETFs provide mainstream investors with accessible avenues to invest in Bitcoin, potentially leading to increased adoption and liquidity in the cryptocurrency market, they don't come without risks, especially regarding custody.

After announcing the ETF approval mid-January, BTC price was around $40,000. By February, it's risen to over $50,000. On March 5, BlackRock saw a record inflow of $788M, forcing them to buy over 11,000 BTC, which in turn probably resulted in Bitcoin's $69,000 all-time high at the time. This shows the effect that the ETFs have had on the market just in terms of the volume that’s traded.

It can be speculated that the 2024 Q1 boom is caused more by the ETFs than the halving, and everyone's therefore curious about the future – this is a new element that could change the dynamics of the halving and even Bitcoin completely.

The introduction of gold ETFs preceded a major multiple-year bull run of the precious metal. Will Bitcoin do the same? Source: TradingView.com

Another, this time undoubtedly positive factor which has indeed contributed to Bitcoin's climb, is the continued expansion of its real-life adoption. This is particularly visible in regions like Asia, Africa, and Latin America, where people use Bitcoin to resolve their need for financial inclusion and alternative banking solutions.

Last but not least, a new spin on the halving may be added by so-called ordinals, potentially making certain coins more special than others, attributing a collector's value to them. We will get into more detail on ordinals on the Invity Blog soon, but for now we recommend this useful Cointelegraph explainer.

How to approach investing around halving?

When contemplating investments around the 2024 Bitcoin halving, it's crucial to adopt a cautious and strategic approach. While historical patterns may hint at potential price surges post-halving, and the media hype can cause anyone to act emotionally, it's imperative to safeguard your investment and minimize risks.

Avoid impulsive decisions and invest only what you can afford to lose.

Diversify your portfolio to mitigate risk.

Conduct thorough research especially before investing in other cryptocurrencies, as many altcoins also get publicity during a Bitcoin bull run.

Consider adopting a dollar-cost averaging strategy, regularly investing a fixed amount in Bitcoin over time to minimize the impact of short-term price fluctuations.

Security first. Custody is one of the most crucial aspects to consider when investing. Always make sure to use reputable wallets to store your Bitcoin. The Invity mobile app is a safe & simple entry point for crypto beginners who want to start investing. For maximum security, especially when storing larger amounts of crypto, a hardware wallet such as Trezor is the only way to ensure you have control over your funds. Make sure to never share your wallet seed or send your BTC to anyone you don't know – bull runs also bring out many scams and phishing attempts so stay vigilant.

The 2024 Bitcoin halving represents an important milestone in the cryptocurrency's evolution, with possibly far-reaching implications for its market dynamics and investor sentiment. By understanding the factors driving Bitcoin's price dynamics, adopting a responsible investment approach, and prioritizing security, you have a better chance to navigate the challenges and opportunities presented by the halving event.

As your friend in crypto, we are always happy to lend a helping hand!

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