The Bitcoin price fell slightly after the “halving” occurred, and its impact was largely digested ahead of schedule by the market. Bitcoin miners are most affected by the “halving”. J.P. Morgan predicts that the “halving” will cut the industry's revenue, triggering a new wave of industry consolidation and the collapse of mining companies.
Just now, Bitcoin has completed its fourth “halving” in history.
According to data from analytical websites Mempool.space and Blockchain.com, the “halving” took effect at 8:10 p.m. New York time on Friday.
The so-called “halving” means that the rewards miners receive through mining are cut in half. Every time the Bitcoin blockchain generates 210,000 blocks, the Bitcoin block reward is cut in half. Plus this time, Bitcoin has been “halved” four times since its inception in 2009.
After the news broke, the Bitcoin price declined slightly and is now fluctuating around $6,3550 per coin.
As a result of this halving, the number of bitcoins produced by miners through verified transactions each day was reduced from 900 to 450, and the rewards miners received were reduced from 6.25 bitcoins to 3.125 bitcoins.
“Halving” = the beginning of a new round of bull market?
Bitcoin supporters previously predicted that “halving” would be a positive catalyst for the latest bull market, because while demand rose (from Bitcoin spot ETFs), “halving” further reduced the supply of Bitcoin.
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.
However, although the price of Bitcoin soared to record levels after the “halving” incident in the past, market observers, including analysts at J.P. Morgan Chase and Deutsche Bank, had previously predicted that the impact of this “halving” had largely been absorbed early by the market.
J.P. Morgan analyst Nikolaos Panigirtzoglou said on Thursday that he expects Bitcoin to be under pressure in the short term because the market is overbuying and that the price of Bitcoin is still higher than that of gold (after adjusting for volatility). He also mentioned that crypto project financing is sluggish.
Deutsche Bank analysts have similar opinions. Marion Laboure, an analyst at the bank, said in a report on Thursday: “The market has absorbed the impact of Bitcoin's' halving 'to a certain extent. Considering the characteristics of the Bitcoin algorithm, this halving was largely anticipated by the market. We don't expect Bitcoin's price to rise significantly after the halving.”
Kok Kee Chong, CEO of Singaporean digital asset exchange AsianNEXT, said: “As expected, the 'halving' has been fully reflected in the price, so price changes are limited. Now, the industry will wait and see if there will be a rebound in the next few weeks with continued institutional interest.”
From a mechanistic point of view, the “halving” itself should not affect the price of Bitcoin in the short term, but many investors expect a sharp rise in the next few months based on Bitcoin's performance after several previous halves. After the halving in 2012, 2016, and 2020, the price of Bitcoin increased by about 93 times, 30 times, and 8 times, respectively, from the price on the day of the halving to the peak of the cycle.
It is worth noting that every time Bitcoin experiences a “halving”, the impact of the amount of newly mined bitcoins on the overall Bitcoin supply (that is, the dilution effect) weakens. For example, after the first “halving”, the amount of newly mined bitcoins was equivalent to 50% of all bitcoins in circulation at the time of halving, which greatly affected the total supply. However, after the fourth “halving”, the amount of newly mined bitcoins will only account for 3.3% of the current total supply, and the impact on the total supply will be greatly reduced.
Shorter income? Has the biggest victim of the “halving” appeared?
Compared to Bitcoin itself, this “halving” has a greater impact on miners.
On the eve of the halving, Bitcoin miners are trending down. For example, Riot Platforms closed down about 41% on Friday, but it surged 356% in 2023. Since this year, the stock prices of most Bitcoin miners have fallen by double digits, which is in stark contrast to the 300% to 600% increase in 2023.
J.P. Morgan Chase analyst Reginald Smith recently stated in an investor report:
“Without changing other conditions, the 'halving' will cut industry revenue, triggering a new wave of industry consolidation and the collapse of mining companies. But at the same time, 'halving' is expected to rationalize network computing power and industry capital expenditure, which will ultimately benefit remaining mining companies.”
There are two main sources of income from Bitcoin absenteeism: mining rewards and transaction fees. The “halving” directly affects miners' mining rewards. However, miners' operating costs, such as electricity and equipment costs, will not be reduced by halving.
This means that if Bitcoin prices and transaction fees do not rise significantly to offset the “halving” effect of rewards, many miners may face difficulties in making a profit.
Bernstein analyst Gautam Chhugani said:
“In the absence of a Bitcoin ETF, the market has so far viewed mining stocks as agents of Bitcoin. The halving will further differentiate mining companies: the low-cost, large-scale, and integrated winners will stand out from many small and medium-sized mining companies, which may fall into an unfavorable situation after the halving.”