Bitcoin’s quadrennial halving event, which reduces block rewards for miners by 50%, is a topic that still holds many unknowns. Questions remain about the impact on miners, the hash rate, and the price of Bitcoin. However, one thing is certain: every four years, miners’ block rewards are cut in half. In April 2024, after the validation of the 210,000th block, miners’ rewards will decrease from 6.25 BTC to 3.125 BTC per block.
This year’s halving could be unique due to the introduction of spot market Bitcoin exchange-traded funds (ETFs) in January. These ETFs have helped drive the price of Bitcoin to all-time highs and have brought the crypto sector close to a $3 trillion market capitalization. The question arises whether the April halving will accelerate the trend of institutional interest in Bitcoin.
Some believe it will. Institutions are still learning about Bitcoin, and understanding its monetary policy will only drive more interest, according to Dante Cook, Swan Bitcoin’s head of business. The halving demonstrates that Bitcoin security can continue despite a lower security budget, said Ethan Vera, COO of Luxor Technology Corporation. Cutting the block reward in half can entice institutions that want to buy the coin itself, added Joe Nardini, senior managing director at B. Riley Securities.
However, not everyone agrees that the halving alone will attract large corporations or financial institutions to invest in Bitcoin. Ruben Sahakyan, director of investment banking at Stifel Financial, believes that the halving should not impact their decision. Investor interest in mining stocks may be influenced by the halving’s impact on miners’ profitability and reduced volatility.
Some argue that halvings may not be as dramatic as they used to be due to the growth of Layer 2 technologies on the Bitcoin Network, which has increased transaction fees. Taras Kulyk, founder and CEO of SunnySide Digital, stated that the impact of the halving is blunted by these factors.
Historically, Bitcoin has experienced price increases leading up to a halving. The recent approval of spot Bitcoin ETFs and the upcoming halving are the two major narratives driving Bitcoin currently, according to Chris Kuiper, director of research at Fidelity Digital Assets. It is uncertain whether the price surge is a result of the halving or the ETF approvals.
Some anticipate that the price of Bitcoin could drop after the halving, following the pattern of past halvings. However, the hash rate has historically recovered within a month after the initial decrease. Clark Swanson, entrepreneur and former CEO of Bitcoin mining firm Blockcap, believes that the new ETFs have created a demand shock to Bitcoin’s limited supply, which will drive prices higher and benefit miners.
BTC proxies like MicroStrategy may be more influenced by the spot market ETFs than the halving itself. Aki Balogh, CEO of DLC.Link, stated that halvings primarily impact Bitcoin supply, while ETFs and other BTC purchases impact demand.
The future of miners is uncertain. Larger mining firms may fare better than smaller ones, but many are looking for supplemental revenue opportunities and investing in the development of applications built on Bitcoin. Transaction fees on the Bitcoin network are crucial for miners in the long term.
When comparing the introduction of spot Bitcoin ETFs with the quadrennial Bitcoin halving, some argue that the ETFs are more important. However, halvings are unique to Bitcoin and demonstrate the cryptocurrency’s monetary policy. They reinforce the scarcity of Bitcoin as an asset and its enduring qualities.