On April 20, 2024, at 10:09 am, the fourth Bitcoin halving took place. While some hard-bitten enthusiasts may have stayed up late or woken up early to watch the Bitcoin block tick over 840,000, the halving itself is, at least initially, a non-event for most investors. The immediate impact of the halving is felt primarily by Bitcoin miners, who see their block rewards cut in half, affecting their profitability and potentially leading to changes in the mining industry.
As the rate at which new Bitcoins enter circulation is reduced by 50%, the asset’s scarcity increases. This built-in deflationary mechanism creates a potential long-term upward pressure on Bitcoin’s price. However, the relationship between halving events and price appreciation is not always straightforward and can be influenced by various market factors.
“Bitcoin trading volume generally sees the most significant increase in the 60 days prior to halvings, as interest builds and prices gain momentum,” market analyst at trading platform Stake, Megan Stals, tells Forbes Advisor.
“…This has happened again, with data from crypto exchanges showing a notable increase in volume in March when compared to February, as investors seek more exposure.”
On April 12, one week out from the halving event, one BTC was worth $107,302 Australian dollars. As of April 22, a few days after the event, the price was slightly lower at around $100,000 AUD.
However, Stals also points out the challenges miners face, particularly smaller operations, in the aftermath of the halving.
“Miners face a profitability squeeze (after the halving) event, due to the increased compute power and energy needed to mint new coins,” Stals says.
“Larger miners should have the resources to invest in new hardware and find more efficient energy sources, but each halving event makes it more difficult for smaller miners to stay in business.”
Despite the increased difficulty for miners, Stals notes that market dynamics play a crucial role in miner profitability. Higher Bitcoin prices could help offset some of the extra mining costs in the short term. However, she adds that “investment in new hardware and finding efficient energy sources is key for their long-term success”.
Stals cites another potential tailwind for the recent halving event: the approval of 11 spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC) in January. These ETFs have made it easier for investors to gain exposure to Bitcoin without the need to navigate cryptocurrency exchanges.
“Bitcoin ETFs have proven more popular with older investors on Stake, particularly those aged 45 and above,” she says.
“…While younger investors may already have direct exposure to Bitcoin through cryptocurrency exchanges, these ETFs offer a solution to older investors who are interested in the space but are unwilling to deal with crypto exchanges and the intricacies of private keys and wallets.”
However, Stals says that Bitcoin is sensitive to higher interest rates, so investors must also take this into account.
“There are still concerns that the US has not yet successfully tamed inflation, and traders have begun reducing their expectations for rate cuts in 2024,” she says.
Consumer Price Index data out of the US for April was higher than expected, with inflation for the past 12 months sitting at 3.8%, dampening expectations that any interest rate cuts would come into effect in the first half of the year. Crypto markets were red on the day of the news.
