Key Takeaways:
Bitcoin Halving, the highly anticipated quadrennial event where the amount of new Bitcoin (BTC) that enters circulation is slashed in half, is expected to take place sometime late Friday or early Saturday, April 20th, 2024.
The process which involves cutting the reward offered to miners in the form of BTC for adding transactions to the blockchain, is set to slow the rate of the apex cryptocurrency’s growth. This year’s event is turning out to be the most important one since the first “halving” that occurred in 2012.
Deutsche Bank Says Market Impact of Bitcoin Halving May Be Muted
Despite the launch of spot Bitcoin exchange-traded funds (ETFs) in the United States that led to BTC surging over 100% in value compared to last year, the impact of the quadrennial event may be more muted this time around.
According to a research report published by Deutsche Bank on Thursday, April 18th, the reward halving has already been priced and a widespread rally in the cryptocurrency market is unlikely to occur.
Previous halving cycles were preceded by massive sector-wide rallies in anticipation of the reduced amount of Bitcoin entering into circulation, which created a kind of supply shock that drove prices upwards, assuming that demand for BTC remains constant or increases.
However, the effect of the event could be relatively soft this year due to the recent launch of protocols like Ordinals and an increasingly robust Bitcoin mining sector.
The report said the positive performance of Bitcoin Cash (BCH) – a hard fork of the Bitcoin network launched in August 2017 – following its halving event bodes well for Bitcoin.
Deutsche Bank analysts Marion Laboure and Cassidy Ainsworth-Grace wrote that they continue to believe crypto prices will remain high due to expectations of potential spot Ether (ETH) ETF approvals, interest rate cuts by the US Federal Reserve, and industry-related regulatory changes across the world.
Miners are Shifting to Regions with Cheap Electricity Anticipating Minimized Profits Post-Halving
The report also mentioned that a surge in layer-2 scaling solutions and decentralized finance (DeFi) activity among various blockchains, including Bitcoin, has augmented the network’s practical utility and is starting to look “remarkably favorable for the Bitcoin ecosystem and the wider crypto space”.
The bank also expects a major shift in the geography of Bitcoin mining post-having. A lower block reward means less profit, and this could compel miners to seek alternative and cheaper forms of energy for their activities. Latin America, Asia, Africa, and the Middle East have caught the attention of miners due to their lower energy costs.
Deutsche Bank also notes that previous halvings were driven by higher cryptocurrency adoption among retail investors. In the first 150 days after each halving event in 2012, 2016, and 2020, the number of retail wallet addresses grew by 52%, 37%, and 3%, respectively.
Institutionalization of Bitcoin Helped Legitimize the Sector
Another point to note is that this is the first time in history that Bitcoin’s price has increased before the event. The surge in price was marked by the remarkable performance of the spot Bitcoin ETFs. For reference, asset manager BlackRock’s BTC fund – the iShares Bitcoin Fund (IBIT) – recorded the fifth-largest inflows of any ETF in the world so far in 2024.
Miles Suter, Bitcoin product lead at Cash App, said the industry has made “significant progress” in making Bitcoin more accessible and easier to use since the last halving in 2020. He believes that as was the case during previous cycles, positive market sentiment led by institutional interest in Bitcoin will attract more retail investors to the market.
The institutionalization of Bitcoin has helped legitimize the sector. In the past, the biggest buyers of the leading cryptocurrency were Michael Saylor’s relatively unknown software company MicroStrategy, Twitter founder Jack Dorsey’s Block, crypto asset manager Grayscale, and Elon Musk’s Tesla.
But ETFs have changed the market forever. With Wall Street giants like BlackRock, Fidelity, Franklin Templeton, VanEck, and WisdomTree entering the market and offering retail investors a traditional onramp into the nascent digital economy through ETFs, Bitcoin is becoming mainstream.
Less Than 200 Blocks Left to be Mined Before Halving
As of Thursday, there are less than 200 blocks left to be mined before the next Bitcoin halving. According to data from Mempool. space, about 99.9% of the required 210,000 blocks have already been mined.
The blockchain produces new blocks at an average rate of one every 10 minutes and 35 seconds. At the current rate, the halving is expected to occur late on Friday or early Saturday.
The upcoming halving will reduce the rewards to 3.125 BTC per block mined, down from the current rate of 6.25 BTC per block, which was established during the previous halving in May 2020 – almost four years ago.
Leading cryptocurrency exchange Coinbase stated in its 2024 Crypto Market Outlook that even though halving events improve the supply-demand dynamics of Bitcoin, it is far less likely to trigger a crypto bull run.
The company’s head of institutional research, David Duong, wrote that the increase in hash rate – the computational power required to mine Bitcoin – is making it more costly and difficult to mine new tokens. He says that the 50% reduction in mining rewards added with higher processing requirements, could lead to a shakeout among miners as profit margins narrow.
At the time of writing, Bitcoin (BTC) is trading at $62,353 – up 1.5% in the last 24 hours.
The world’s largest cryptocurrency by market capitalization hit an all-time high of $73,798 on March 14th, surpassing its previous peak of $68,990 set in November 2021.
