Changes in the Bitcoin network post-halving: A closer look

Bitcoin Halving Event: Milestones and Market Impact

Similarities to previous halving events

The recent halving of Bitcoin follows the pattern set by the previous ones by halving mining rewards. This mechanism aims to reduce Bitcoin inflation and change the dynamics of its supply. Historically, this has had several key effects:

1. Decrease in supply

The immediate result of the halving is the reduced rate at which new BTC are introduced into circulation. This reduction in supply, with constant or increasing demand, tends to create upward pressure on price.

2. Initial price volatility

After the halving, Bitcoin often trades in a range or with a slight drop in price. This was also seen in the last halving event, where the price of Bitcoin showed significant volatility, hovering around $63,000, experienced a small sell-off, and then recovered some of those losses.

3. Delayed price impact

The price impact of halving events is rarely immediate. Historically, significant price increases are seen months after it as market participants adjust to new supply dynamics.

Differences in this halving

Despite these similarities, the recent halving event has two significant differences:

1. New all-time high before the halving

Unlike previous times, before this event Bitcoin reached a new all-time high. The approval of spot funds for Bitcoin trading in January spurred significant buying activity, with the price of BTC surpassing $73,000 in late March. This pre-halving peak was unprecedented in Bitcoin’s history and influenced subsequent market behavior, including the profit-taking phase that led to price declines.

2. Historically low inflation rate

After the halving, Bitcoin’s inflation rate dropped to an all-time low of 0.85%. This is lower than the rate of inflation for gold, traditionally considered a superior hedge against inflation. This significant achievement positions Bitcoin as a more attractive long-term store of value, highlighting its potential as a “digital gold”.

Long-term optimism amid short-term volatility

Investors should manage their expectations for near-term gains after the halving, as volatility is likely to persist. However, the long-term outlook for Bitcoin remains positive for several reasons:

1. Historical results

In previous cycles, Bitcoin has shown significant price increases in the year after the halving, often exceeding 400% and reaching new all-time highs. While Bitcoin has already set a new record high, the long-term effects of the recent event combined with increased demand from ETFs could put significant upward pressure on its price.

2. Institutional interest

The approval and adoption of Bitcoin ETFs shows growing institutional interest and legitimacy, which could potentially lead to more capital entering the market and support higher prices.

3. Inflation hedge

With Bitcoin’s inflation rate now lower than that of gold, its appeal as a hedge against inflation increases, appealing to investors looking to protect their wealth from currency depreciation.

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