Let’s start with the beginning, what is Bitcoin halving?
Halvings are predetermined events in the Bitcoin network that occur around every four years and are meant to reduce the reward miners get by 50%. Satoshi Nakamoto, Bitcoin’s developer, designed this mechanism to control the rate at which new Bitcoins are minted and limit the supply.
There should be only 21 million Bitcoin, so the creator had to make sure that there is a mechanism in place to manage the supply and slow the mining process down as the number gets closer and closer to reaching the established amount. The 2024 halving reduced the reward from 6.25 to 3.125, taking Bitcoin a step closer to becoming as scarce as gold.
How does the market behave after the halving?
The previous halving events have worked as catalysts for bull markets because the investors have shown an increased interest in purchasing Bitcoin and engaged in extensive speculative trading. However, there is no guarantee that the market will follow the same trend in the aftermath of the 2024 halving. Here is how the event impacted the sector:
– There is a change in the supply dynamics because the mining reward is reduced, and less Bitcoin is entering the market. The market is subjected to a supply shock for a while, which could drive the price up, even if history tells us that it will most likely happen a couple of months after the halving. The approval of spot Bitcoin ETFs also impacts the supply dynamics this time, so the situation might differ a lot since the last halvings.
– Miner economics also suffers from changes because the profitability drops during the first months, only to increase over time. Only the miners with efficient and modern hardware and operations will be able to withstand the process. Halvings effectively support market consolidation and reinforce the position of established parties.
What should investors expect from Bitcoin at the start of 2025?
Predicting how a volatile asset might evolve is quite challenging because its performance depends on several bearish and bullish factors that impact the overall crypto market. In addition to the last halving, additional factors like macroeconomic trends, institutional adoption, and regulatory changes also influence Bitcoin’s value.
There are two potential scenarios in the case of Bitcoin after a halving event.
Bitcoin might go bullish
The sturdiness of Bitcoin will decide if it will have a bullish phase after the last halving, considering that the global economy is currently struggling and the US is dealing with a banking crisis. 2023 brought to light multiple bank failures, and investors haven’t forgotten about these situations, so they are cautious about the traditional system and have turned their attention toward alternative solutions.
When banks fail, the governments are forced to print more money and provide stimulus, which only devalues national currencies. Bitcoin becomes even more attractive than it already is in this context because it is a resilient and fair digital asset that follows the rules of the game and resists any exterior influence due to its decentralized nature.
The recent innovations (runes, BRC-20 tokens, and ordinals) on the Bitcoin blockchain also trigger an increased demand for the cryptocurrency. The public is adopting the Lighting Network, the ecosystem layer that facilitates faster transactions, which will transform it into a popular means of payment.
Suppose Bitcoin continues on the same path to diversify its utility cases and the public uses it more as a payment method. The scenario of a bull phase could come true.
Bitcoin might go bearish
As mentioned multiple times, Bitcoin is a volatile asset, so its value could go down, even if it went through a halving in 2024. Crypto specialists say that the long-term security of the network is listed among the reasons why the public might not stay interested in the cryptocurrency. The short-term pressure is another factor that could affect its price negatively.
The community is also divided regarding the inscriptions on Bitcoin because while they might generate profit, they are also something the project didn’t initially promote, and the enthusiasts are reticent. They believe that inscriptions only congest the network and complicate the mining process, which could only be a drawback for the overall project.
Let’s not forget about environmental concerns because Bitcoin remains one of the projects that consumes the most energy. The White House suggested that Bitcoin miners in the US should pay a 30% tax on bitcoins, considering their environmental impact. If more governments put pressure on the network, the cryptocurrency price will most likely suffer. Europe tried to introduce a ban on the proof-of-work mechanism in 2022, and it could come back to the idea.
Is it worth investing in crypto now?
Investing in Bitcoin and any other digital currency involves several ups and downs, and it’s essential to fully understand their mechanisms to develop a profitable strategy. The 2024 halving event is one factor impacting Bitcoin’s evolution, but many others also influence it.
