Original title:Halving handbook: A primer for institutional investors
Original author: Coinbase
Original compilation: Heilsman, ChainCatcher
This article, written by the Coinbase Handbook for institutional investors, details previous Bitcoin halvings to provide insight into past trends. However, this halving looks slightly different due to the recent entry of Bitcoin ETFs into the market and the fact that Bitcoin hit an all-time high before the halving. The full text is compiled as follows:
Overview
The next Bitcoin halving will occur in mid-April 2024 and will directly result in the halving of the Bitcoin earnings miners receive after validating transactions. The halving is an important feature of the Bitcoin network design that aims to limit inflation by reducing the supply of new Bitcoins entering circulation.
Halving occurs every time 210,000 blocks are mined, which happens approximately every four years. The upcoming halving will be the fourth in Bitcoin’s history. Because halvings occur automatically when a specific block is mined, and this one will occur at block 840,000, the exact timing is variable (depending on the network’s hash rate). When the halving takes effect, miners’ block rewards will drop from 6.25 BTC to 3.125 BTC.
Halvings will continue on the same schedule until all 21 million Bitcoins have been mined, which is expected to occur sometime around 2140. The fixed halving schedule makes Bitcoin a unique programmatically disinflationary asset.
Review of the first three halvings
Bitcoin’s previous three halvings occurred in November 2012, July 2016, and May 2020. Since halving reduces the supply of new Bitcoins, it is generally seen as bullish for Bitcoin prices. Price action from previous halvings supports this view: Bitcoin gained an average of 61% in the six months before the previous halving and an average of 348% in the six months after the halving. However, by digging into the numbers, it’s clear that not all halvings will be like this.
Bitcoin surged 139% in the six months before the first halving, then surged 923% in the six months after. Of course, these were early days for Bitcoin, which was trading at just over $5 six months before the halving, and subsequent halvings haven’t been as strong.
Performance slowed down a bit during the second halving. Bitcoin rose 46% in the six months leading up to the halving and another 37% in the following six months.
The third Bitcoin halving continues a more modest but still strong trend. BTC actually fell 2% in the six months leading up to the halving, but then rose 82% over the next six months.
Assessing the upcoming halving
Given previous history, its easy to deduce that Bitcoins recent strong performance (up 157% since mid-October) will continue before and after the upcoming halving, but investors should be cautious about this and not just rely on this. Superficial judgment.
While halvings may have a positive impact on Bitcoins price performance, historical evidence on this relationship remains limited and somewhat speculative. Furthermore, Bitcoin does not operate in a vacuum: its price is affected by factors far removed from cryptocurrency-specific impacts such as halvings.
The macro impact before and after the halving should be comprehensively measured
Bitcoin’s strong performance following its last halving in May 2020 largely occurred in an environment of extremely loose monetary policy and historically strong fiscal stimulus in response to the COVID-19 pandemic.
Likewise, the recent rise in Bitcoin trading is likely driven more by enthusiasm for the prospect of spot Bitcoin trading than excitement about the halving. There are a number of macro factors that could also have a meaningful impact on Bitcoin prices in the future.
On the bright side, we expect the Fed to begin cutting interest rates as early as May and begin scaling back its quantitative tightening program shortly thereafter. On the other hand, we can see the growth of miners’ Bitcoin supply (as part of their rewards) and companies emerging from bankruptcy, including former crypto lenders Celsius Network and Genesis Global.
On-chain analysis
In addition to these macro factors, it is also instructive to study on-chain indicators to gain insight into some of the technical factors that may affect prices in the short term.
In addition to observing how BTC has performed in previous trading windows, it can also be helpful to zoom out to assess where the market is within the broader Bitcoin cycle. Since its inception in 2009, Bitcoin has completed four market cycles. The current cycle is most similar to 2018-2022, during which Bitcoin rose 500% from the cycle lows.
Another interesting data point to consider is the total supply of Bitcoin held by long-term holders. According to Glassnode’s definition, long-term holders are investors who have held a cryptocurrency for at least 155 days. Historically, this duration marks a significant decline in the probability of these assets being sold. All other things being equal, long-term holders should be less likely than short-term holders to view the halving as an opportunity to sell heavily.
The supply in the hands of long-term holders is quite high by historical standards, although it has begun to decline since the launch of the spot Bitcoin ETF in mid-January.
The halving, while historically bullish, is just one of many factors influencing Bitcoins price trajectory. To learn more about how the halving, other market trends, or macroeconomic conditions affect the cryptocurrency market,Check out the Coinbase Institutional Research and Insights Center。
