Expert Predicts Potential Supply Shock Following Bitcoin Halving

The bitcoin halving is here. One of the most anticipated events for the Bitcoin
BTC
protocol just happened for the fourth time in history last April 19. This automatic process reduces the bitcoin block reward in 50% each 210,000 blocks, or around 4 years.

“Total circulation will be 21,000,000 coins. It’ll be distributed to network nodes when they make blocks, with the amount cut in half every 4 years,” Bitcoin creator Satoshi Nakamoto explained in the early days of the project. To be included in the 840,000 block, users paid more than 37 BTC, being among the most expensive blocks in Bitcoin’s history. It was founded by ViaBTC pool, one of the largest pools in the industry, according to mempool.space data.

The halving is a key element of Bitcoin’s design. It helps to complete the distribution of the 21 million coins that are supposed to exist but without flooding the market with a continued issuance. Take in mind that at the beginning of bitcoin’s existence, the block reward was 50 BTC, so without the halving, the amount of mined BTC would already have reached its limit.

With this lower issuance, and considering the new demand driven mainly by the spot bitcoin Exchange Trade Fund operated by BlackRock
BLK
, Fidelity and few others, this halving could lead to a “supply shock”, according to JAN3 CEO, Samson Mow.

“The halving is when we’re going to really see supply shock take hold. The ETFs have been slowly draining the market of available Bitcoin, and now the production rate will be cut in half. Even before the halving, daily demand was 5-10 times that of supply, so Omega Candles seem inevitable”, Mow detailed to me in an interview. Omega candles are a reference to big trading candles, that means high volatility and big changes in price.

But for other bitcoin investors and advocates, the halving just means that the protocol works and a reminder of the low time preference needed to “survive and thrive in Bitcoin”. “For me the halving is about marking the entrance of Bitcoin into its fifth epoch. The long duration of these four year periods between halvings are a great representation of the low time preference required to survive and thrive in Bitcoin both as an individual and as a company,” Swan Bitcoin CEO Cory Klippsten told me.

Historically, the halving is a bullish event for bitcoin and it also has a positive effect for the crypto industry in general. First, it proves that the protocol works and the consensus is clear. Second, it tightens BTC supply making it scarce and more similar to gold each time. Finally, halvings confirms the health of the network and makes the miners less efficient to improve or stop their operations. Then, you also have the price that moved positively after each previous halving.

“We believe that the halving is a reminder of Bitcoin’s ingenious design to create digital scarcity. Although I expect volatility in the short term, my focus is on how this reduction in supply will move the market in the coming years. We will be closely watching institutional adoption and regulation, as these will be critical factors influencing Bitcoin’s trajectory post-halving,” salvadorean bitcoin custody and payments start-up DittoBanx CEO, Guillermo Contreras pointed to me in an interview.

Since this new halving, each new block awards 3.125 BTC to the miner that finds it, plus the fees users pay in order to make their transactions. The automated 50% reduction will continue until the last bitcoin is mined, which is expected to happen around 2140.