This Saturday, Beijing time, the cryptocurrency industry is expected to usher in a major event — Bitcoin may be halved for the fourth time. Deutsche Bank recently released a research report saying that judging from historical data, the price of Bitcoin generally rose after being halved, but the correlation between Bitcoin prices and stock indexes has weakened recently, and it is not expected to have much spillover effect on the market. The bank believes that the current halving market has already been partially priced, so the price of Bitcoin will not rise significantly, but it is expected to remain high in the future.

Bitcoin halving occurs approximately every four years. In the process, the amount of new bitcoins miners receive as a result of verifying transactions will be cut in half. This is to maintain Bitcoin's scarcity and control its rate of inflation over time. The last halving occurred in May 2020, reducing miner rewards from 12.5 bitcoins to 6.25 bitcoins per block. The upcoming fourth halving will be in April 2024, once again halving the rewards to 3.125 bitcoins.

After that, the halving process will continue until the number of bitcoins in circulation reaches its pre-set limit of 21 million, which is expected to occur in 2140. Once the upper limit is reached, crypto miners will only profit from transaction fees, which are determined by the size of the transaction and the amount of data involved in the transaction. Currently, there are 19.7 million bitcoins in circulation.

Generally speaking, miners are forced to adjust the use of their computing power to accommodate declining profits from mining activities. So far, the average daily income of miners in April was $68 million.

As a variant of Bitcoin, the performance of Bitcoin Cash after being halved can be used as a reference. After successfully completing its halving on April 3, 2023, the price of Bitcoin Cash increased by 12% between April 3 and 4. The main difference between Bitcoin Cash and Bitcoin is the block size. Bitcoin Cash can process 32 times more transaction information than Bitcoin, and transaction verification is faster. Therefore, the halving event favors Bitcoin Cash.

Historical data: The correlation between the general rise in prices and the weakening of the stock index after halving

Historically, price changes before and after the Bitcoin halving event attracted widespread attention. In the 30 days prior to the 2012, 2016, and 2020 halving events, the price of Bitcoin increased by 5%, 13%, and 27%, respectively. Furthermore, the halving event also boosted the number of Bitcoin addresses, particularly in the 150 days after the halving, the number of newly created Bitcoin addresses increased by 83%, 101%, and 11%, respectively.

Bitcoin is often seen as the “North Star” of the crypto market. Since 2024, the return correlation between Bitcoin and Ethereum (the second-largest cryptocurrency) is 82%. Bitcoin prices are historically highly correlated with major US stock indices, but since the FTX crisis in 2022, the correlation with the S&P 500 and NASDAQ has weakened, and so far in 2024, the correlation is only 16% and 15%, respectively. As a result, this halving is not expected to have too many spillover effects on the broader financial market.

Furthermore, the hash rate usually drops after Bitcoin is halved, as some miners exit the market due to reduced earnings. Hash rate refers to the total computational power used to mine and process Bitcoin transactions. After halving, the hash rate usually falls as mining revenue decreases, and participation in the process of guessing hashes and adding blocks to the blockchain becomes less profitable.

The data shows that after Bitcoin's first three halves, the hash rate decreased by 25%, 11%, and 25%, respectively. Lower hash rates may affect the security of the network, but hash rates usually recover in the medium term. In the past three halves, the network returned to the hash rate level before the halving within an average of 57 days. The current high price of Bitcoin may also limit this short-term decline in hashrate, as Bitcoin miners' profits before being halved reached a record high.

Conclusion: Prices will not rise significantly, mining activities will move to lower-cost regions

Deutsche Bank believes that the market has partially anticipated the Bitcoin halving event, so it is not expected that the Bitcoin price will rise significantly. Bitcoin prices are expected to remain high after the halving incident due to anticipated future approval of Ethereum spot ETFs, interest rate cuts by major central banks, and regulatory changes.

Furthermore, with the increase in Layer-2 Solutions (Layer-2 Solutions) and financial decentralization (DeFi) activities, Deutsche Bank believes that the prospects for the Bitcoin ecosystem and the broader cryptocurrency sector have become very favorable. Mining geography is expected to shift after the halving event, as lower block rewards reduce profit margins, and miners will be forced to find cheaper and more reliable sources of energy. Currently, the US accounts for 40% of mining, China 15%, and Russia 20%. Latin America, Asia, Africa, and the Middle East have attracted miners' attention due to low energy costs. Within the US, crypto mining is likely to remain centered around Texas.

Bitcoin rose 1.55% to $64499.40 at noon EST on Friday.