There is a year left before the next Bitcoin halving, and analysts are already assessing its possible impact on the industry. Does this mean that it is time to partially exchange BTC to ETH to increase profits in the future?
What is halving
Bitcoin halving is the process of reducing the reward of miners for a new block in the Bitcoin blockchain. Halving was originally included in the protocol and is performed approximately once every 4 years, or more precisely, every 210,000 blocks mined. This mechanism solves two main tasks:
- Holds back inflation.
- Provides a predictable decrease in the supply of new BTC in the market.
A deflationary environment is created by slowing down the rate at which new coins are issued. The scarcity of BTC should keep it valuable and eventually make it an attractive store of value. In other words, halving is a key component of BTC’s long-term economic sustainability.
Historically, each reduction in the issue volume has a strong impact on the value of the coin. In 2012, 2016, and 2020, in the months following the halving, Bitcoin rose sharply in price amid expectations of a supply shock and rising demand.In 2024, the block reward will decrease from the current 6.25 BTC to 3.125 BTC. Since the demand for BTC is steadily growing, it can be assumed that the coin will rise in price again.
Historical dynamics of the BTC rate
Changes in the BTC rate in the past indicate a significant impact of the halving on the price of the coin. Experts believe that the impact of this process on the BTC rate depends on many factors, such as global economic conditions, the legal framework and the strategies of institutional investors.
During the first halving in 2012, BTC was worth approximately $11 in November 2012, and by November 2013 the price of the coin had risen to $1,100. At the time, BTC was a new idea and the market was ruled by retail investors and enthusiasts who saw the potential of a decentralized digital currency.
In July 2016, BTC was worth $650 in July, but rose to $20,000 by December 2017. The rise in the price of the #1 cryptocurrency was largely influenced by the media, the entry of institutional investors into the market, and the emerging fashion for initial coin offerings.
However, the first attempts to regulate the cryptocurrency market, which were expressed in the ICO ban and the tightening of rules for crypto exchanges, caused additional uncertainty and contributed to market volatility.
Since the 2020 halving, Bitcoin has risen from around $9,000 in May to an all-time high of $69,000 in November 2021. During this period, large corporations and investment funds entered the cryptocurrency market.
The COVID-19 pandemic also played a significant role in shaping market sentiment. To stop the brewing economic recession, the monetary authorities launched printing presses. However, such measures have raised well-founded fears about inflation and the attractiveness of Bitcoin as a tool for preserving capital.
That is, the fate of the cryptocurrency market in general and the Bitcoin exchange rate in particular is quite dependent on institutional investors and their reaction to the next halving.
Possible implications for the cryptocurrency market
Decreasing the block reward will inevitably trigger a chain of reactions throughout the market, but right now it’s hard to say exactly what they might be. Perhaps miners will turn their attention to altcoins with more favorable mining conditions, unique value propositions, or more efficient consensus mechanisms.
The shift in focus will contribute to the growth of the importance of altcoins in the cryptocurrency ecosystem, which means their value will increase. It is possible that investors will be more willing to include in their portfolios cryptocurrencies that use the Proof of Stake consensus mechanism, which do not depend on mining and are not so susceptible to the effects of halving.
Perhaps this event will become a catalyst for technological innovations aimed at optimizing mining, reducing power consumption and expanding transaction processing capabilities.
BTC price prediction
The less time remains before the block reward decreases, the more optimistic forecasts are noticeable. Many investors expect another bull run similar to what has been seen in previous market cycles. The general optimism is due to the growing interest of institutional investors, the active popularization of cryptocurrencies and the perception of BTC as a hedge against inflation and global economic uncertainty. One way or another, the coin does not lose popularity, including among customers https://letsexchange.io/.
Yet past performance does not guarantee similar results in the future. Many other factors that are not related to the reduction in supply, such as macroeconomic trends and changes in the regulatory framework, can also affect the price of Bitcoin. So approach the upcoming event carefully and take into account the accompanying unique factors shaping the market landscape.