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How the Bitcoin Halving Event Affects the Crypto Market

How the Bitcoin Halving Event Affects the Crypto Market

By Guest Author

June 18, 2024

You might have heard of the most recent Bitcoin halving event that occurred in April this year. Many investors wonder what it means for the crypto market and what considerations you should be aware of as an investor. This article simplifies things for you by highlighting how Bitcoin’s halving event affects the crypto market.

Significant Price Movements

Bitcoin halving consistently leads to price surges in the cryptocurrency markets. The first halving, which happened in 2012, triggered Bitcoin’s price to rise from around $12 to more than $1,000 in the subsequent year. Likewise, the 2016 halving led to prices soaring to nearly $20,000. Then came the 2020 halving, which saw the figures hit nearly $70,000.  

If you intend to buy Bitcoin, you have to prepare for what might arise from the recent Bitcoin halving. The patterns above demonstrate how halving correlates to heightened Bitcoin prices due to reduced supply. It’s worth noting that halving is not the sole driver of price increases. Factors like regulatory updates, market sentiments, and technological advancements also play a role.

Influence on Investor Behavior

Since Bitcoin halving leads to significant price volatility, the effects touch on the investment returns by extension. Some investors halt their investment plans to assess the halving impact on the crypto prices. Others increase Bitcoin holdings in anticipation that the reduced supply may result in higher prices. Another group of investors opts to diversify into alternative stablecoins or cryptocurrencies to shield themselves from uncertainty.

It is expected to witness a rise in trading volumes a few months prior to the halving event as investors reposition. Long-term investors often double on holding strategies, predicting a post-halving value increase, while savvy traders keep an eye on technical indicators and market sentiment to determine the right time to enter or exit positions.

Inflation

Addressing inflation concerns is one of the most essential concepts behind Bitcoin halving. In the US, an inflation rate of about 2% is usually regarded as good for an economy. Bitcoin halving aims to counter inflationary effects by maintaining scarcity and reducing reward amounts. Nonetheless, this inflation protection mechanism is not able to shield Bitcoin users from the inflationary effects that arise from the fiat currency. Keep in mind that you have to convert Bitcoin to traditional currency to use it in an economy.

Increased Demand

Since halving reduces the number of Bitcoin introduced in the market to create scarcity, the demand for new Bitcoin often increases. The historic rise in demand contributes to price increases, which works perfectly for speculators and investors.

Reduction of Mining Rewards

Miners include businesses and groups of people who focus on Bitcoin mining for profitability. Halving cuts mining rewards in half, making the endeavor less profitable with each halving. To remain competitive and maintain a position in the crypto industry, especially in large-scale Bitcoin mining, miners have to upgrade their mining capacity, which calls for vast amounts of energy and money. A reduction in mining rewards for smaller Bitcoin miners simply translates to lower chances.

Bitcoin halving is here to stay until 2140, when its proposed limit of 21 million Bitcoin will be met. The halving event significantly impacts miners, investors, consumers, and traders, as it results in significant price movements, reduced supply/ Bitcoin scarcity, and increased demand. As an investor, you have to prepare well for each halving event to cushion yourself from its effects.

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