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TA: Let's Have a Look at Bitcoin post-Halving

Bitcoin halving influences the price of Bitcoin, but how? Let's do a technical analysis of Bitcoin right after the halving.




Bitcoin halving


This article doesn’t represent financial advice: always do your own research before investing!


Bitcoin halving is for sure one of the most noteworthy phenomena concerning Bitcoin. Its implications might last for a long time, but historically, traders and investors tend to precede this event.


Halving influences the price of Bitcoin, but how?


Now that we have observed the fourth BTC halving, let's analyze the possible scenarios in the short and long term. Will Bitcoin price drop or rise?


What is Bitcoin Halving?


Bitcoin halving is a phenomenon that reduces the reward for mining new Bitcoin blocks by half.


This event occurs every 210,000 blocks. Considering that it takes around 10 minutes to form each block, a BTC halving occurs approximately every 4 years.


How Long Between Bitcoin Halvings? Decoding the 4-Year Pattern

Python code

# Constants
blocks_per_halving = 210000
minutes_per_block = 10
minutes_per_hour = 60
hours_per_day = 24
days_per_year = 365.25

# Calculate total minutes for 210,000 blocks
total_minutes = blocks_per_halving * minutes_per_block

# Convert minutes to days
total_days = total_minutes / (minutes_per_hour * hours_per_day)

# Convert days to years
total_years = total_days / days_per_year

total_years

Equation

Total Time (in years) = [ 210,000 x 10 / ( 60 x 24 x 365.25 ) ] = 3.9926990645676477 - so, roughly 4 years


BTC halving is embedded within the original Bitcoin code and blockchain structure.

Bitcoin Protocol and the Halving - Why does Bitcoin Halve?


For those familiar with coding or interested in contributing to the Bitcoin project, you can find the original protocol on GitHub: https://github.com/bitcoin/bitcoin/blob/master/src/validation.cpp


But to give you a little glimpse of the crucial code, here's the snippet we're interested in:


CAmount GetBlockSubsidy(int nHeight, const Consensus::Params& consensusParams)
{
    int halvings = nHeight / consensusParams.nSubsidyHalvingInterval;
    // Force block reward to zero when right shift is undefined.
    if (halvings >= 64)
        return 0;

    CAmount nSubsidy = 50 * COIN;
    // Subsidy is cut in half every 210,000 blocks which will occur approximately every 4 years.
    nSubsidy >>= halvings;
    return nSubsidy;
}

CoinsViews::CoinsViews(DBParams db_params, CoinsViewOptions options)
    : m_dbview{std::move(db_params), std::move(options)},
      m_catcherview(&m_dbview) {}

This is the part of the Bitcoin protocol's code that handles halving. This explains why we know that halving occurs approximately every four years.


To explain this "simple" function in layman's terms, let's break it down:


1. Calculating Halvings:


int halvings = nHeight / consensusParams.nSubsidyHalvingInterval;

This line calculates how many halving events have occurred by dividing the current block height (nHeight) by the halving interval (consensusParams.nSubsidyHalvingInterval, which is typically set to 210,000).


2. Handling Maximum Halvings:


if (halvings >= 64)

    return 0;

This condition ensures that the subsidy does not continue indefinitely. Since the subsidy cannot be halved more than 64 times (due to the limit of shifting a 64-bit integer), the reward becomes zero after 64 halvings.


3. Calculating Subsidy:


CAmount nSubsidy = 50 * COIN;

nSubsidy >>= halvings;

The subsidy starts at 50 bitcoins (multiplied by the number of satoshis in a single bitcoin, defined by COIN) and is halved by right-shifting nSubsidy by the number of halvings. This bitwise operation effectively halves the subsidy each time.


So, what does all this mean?

Bitcoin, as per the instructions designed by Satoshi Nakamoto, has a definite supply of 21 million BTC.


Keep in mind that new units are created through mining, which, in simple terms, involves the creation of new blocks of transactions..


Halving simply means reducing the mining reward approximately every four years: initially, the reward was 50 BTC, then it was reduced to 25 BTC, then 12.5 BTC, and so on, until the maximum supply of 21 million BTC is reached around the year 2140!


Why did Satoshi Nakamoto Decide to Insert Halving?


The answer is very simple: to control inflation.


There's a reason why BTC is defined as 'the digital gold'. It is a scarce asset, and its value is continually influenced by this halving mechanism.


At this point, a clarification is due: BTC is often defined as a deflationary asset, but it might be more accurate to describe it as a deflationary-controlled asset.


From a technical standpoint, as long as new bitcoins are being created, the supply is inflating. Currently, Bitcoin is in a phase where new coins are generated with every block. Thus, technically, it is still experiencing inflation, albeit at a decreasing rate due to halvings.


Bitcoin is often considered deflationary because its total supply is capped at 21 million coins, which cannot be exceeded. Additionally, the rate at which new bitcoins are created and introduced into circulation decreases over time due to the halving events. This makes the asset deflationary in the sense that, over time, the growth rate of its supply decreases, potentially increasing each bitcoin's value if demand remains constant or increases.


The issuance of new bitcoins is controlled by a predetermined schedule set in the Bitcoin protocol, which halves approximately every 210,000 blocks. This predictability and the hard supply cap are central to Bitcoin’s design.



The Effects of Halving on BTC Price


As mentioned, the most recent halving, which occurred on April 19, 2024, was the fourth in the history of Bitcoin. Here are the dates of the previous three halvings:


  • First Halving:

Date: November 28, 2012

At this halving, the mining reward was reduced from 50 bitcoins per block to 25 bitcoins per block.


Chart - Price eof BTC after the first halving


  • Second Halving:

Date: July 9, 2016

The mining reward decreased from 25 bitcoins per block to 12.5 bitcoins per block.



Chart - Price eof BTC after the second halving


  • Third Halving:

Date: May 11, 2020

The reward was further reduced from 12.5 bitcoins per block to 6.25 bitcoins per block.


Chart - Price eof BTC after the third halving



  • For the first halving, it took around 1 year for BTC to reach its peak, from November 2012 to December 2013.

  • For the second halving, it took around 17 months, from July 2016 to December 2017. Consider that this period marked a significant increase in public awareness and adoption of cryptocurrencies, including a surge in initial coin offerings (ICOs) and rising interest from both retail and institutional investors.

  • For the third halving, it took around 17 months, from May 2020 to October 2021.


Based on this initial analysis, we can begin drawing some conclusions. It is evident that the market has become 'slower' over time, attributed to increasing awareness and the growing participation of institutional investors.


But what is even more interesting, is the "form" of the price line.


Consider the percentage increases in price from the price at the halving to the next peak:


  • First Halving (2012): the price increased approximately by 9,900%.

  • Second Halving (2016): the price increased approximately by 2,946%.

  • Third Halving (2020): the price increased approximately by 679%.


Once again, have a look at the three charts: the first chart is characterized by an impressive peak, formed in a relatively short period of time. The second chart shows similar behavior during the uptrend, but the downtrend is more regular. Additionally, it took longer for the cycle to complete. The third chart appears more regular and 'institutionalized.


The very beginning of the trend shows more natural patterns—for instance, buyers constantly absorbing sales during the day of the halving.


To recap, let's explore a possible interpretation of BTC post-halving market cycles:


  • The rapid ascent in price after the first halving is characteristic of a less mature market with lower liquidity and less public awareness. The peak came about a year after the halving and represented an extremely high percentage increase.

  • By the time of the second halving, awareness and adoption had grown, leading to a longer and more sustained upward trend that culminated in the late 2017 peak. The subsequent downward trend was somewhat more gradual compared to the ascent, possibly indicative of more sophisticated market behavior and a larger base of long-term holders.

  • The third halving period saw a greater institutional presence, which may have contributed to the more 'institutionalized' appearance of the price chart. This phase was likely influenced by larger capital inflows and strategic trading, leading to reduced volatility and more sustained trends.


BTC market is maturing, with increased liquidity, and involvement of more institutional investors, who tend to have longer investment horizons and more strategic approaches to entry and exit, as opposed to the more speculative retail behavior that dominated earlier cycles.


The form of the price line across these halvings shows a market that is evolving, becoming more resilient, and possibly less prone to extremely volatile swings - although it is still more volatile than traditional financial markets!


The "natural patterns" in the initial stages could reflect the organic growth of the Bitcoin network and its adoption curve, which is gradually becoming less pronounced as market capitalization grows and Bitcoin's price discovery becomes more established.



BTCUSDT - 1D chart - Binance. Chart #1

BTCUSDT - 1D chart - Binance. Source: TradingView



BTCUSDT - 1D chart - Binance. Chart #2

Detailed candle. Volume above average + small body of the candle = buyers are absorbing sales.





Will the Price of Bitcoin Increase After the Halving? Yes, but...


In the short run, there should be a correction - especially if buyers don't manage to support the movement. This might lead the price of BTC below $60,000. But in general, there is a strong support zone around $63,800.


The price of BTC should move in the range between $62,000 and $71,000 until the next breakout supported by buyers.


BTCUSDT - 1D chart - Binance. Chart #3


Nevertheless, what is interesting to observe is the possible outcome in the long run. It seems that BTC didn't complete its cycle, and that the sideways movement right before the halving was just a short "test" that resulted in a short accumulation phase.


BTC should at least reach $128,000 in the next months, but be aware that the real downfall still has to come!



BTCUSDT - 1D chart - Binance. Chart #4



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