Published on November 23rd, 2024 | by Jameelah "Just Jay" Wilkerson

Should investors view Bitcoin’s halving as a volatility event?

Bitcoin’s halving events are unavoidable, but though monumentally important for the blockchain, each of them does not have to trigger a volatility explosion. Bitcoin has four halvings, and the market already knows what to expect after such an event because the previous ones were well-documented to provide investors with the information they need to make decisions.

The fourth mining-reward halving took place in April this year when the code cut down the BTC issuance to 3.125 (until now, it was 6.25). The period preceding the event was characterized by increased volatility, and if we check the Bitcoin price chart, the largest cryptocurrency by market cap experienced a price spike because the investors predicted it would deal with price turbulence after the halving. However, not all crypto specialists agree that Bitcoin’s halvings are synonymous with volatility. Considering that halving events are announced and the public expects them to happen when they do, associating increased volatility with them isn’t wise. The market should become more volatile when outcomes are uncertain, but at this point, everyone knows that Bitcoin goes through halving events every four years.

How do halvings impact Bitcoin’s value?

Since the launch of Bitcoin, everyone has been aware that there will be only 21 million coins in circulation, and they aren’t all in circulation yet. The amount of coins miners get cut in half every four years to control the number of coins in circulation. The significant change that impacts Bitcoin every four years is called halving, which is basically a process that reduces the reward miners get when they confirm new blocks. Bitcoin’s protocol includes this mechanism, which is meant to deter inflation and maintain the total supply of Bitcoins at 21 million. According to crypto experts, halving events is vital for the success of the digital currency because the crypto community anticipates them, considering they often trigger market volatility and price speculation. Significant price fluctuations characterize the periods before and after the halvings because the investors want to join the trend. And while bull markets aren’t a direct consequence of halvings, they usually precede them.

According to history, Bitcoin’s price increased in the next half year after the halvings and reached new all-time highs. Considering that it just went through a bear market and completed the fourth halving in April 2024, everyone wonders if it will experience a new all-time high in the next months.

In this context, Bitcoin supporters wonder if the cryptocurrency will react the same after this last halving. According to experts, the market cycle starts earlier and extends to several months after the halving, so we have yet to see what it has in store this time. Post-halving prices tend to be higher than those in the time before the event—five to six times greater in the next six months compared to other periods. While other assets go through a price correction, cryptocurrencies make an exception and follow their own path.

Even if most people think the halving is the only event that triggers an increase in price, other factors like supply and demand also make the cryptocurrency act bullish. This halving differs from the others because Bitcoin reached an all-time high before the event took place, making many experts assume that the event is priced in. They think the prices won’t surge at the same level they did previously, but the coin could go downward.

An analysis of Bitcoin’s highs and lows after previous halvings

Those interested in adding bitcoin to their portfolios post-halving should run a historical price analysis because the asset tends to respond dramatically to halving events, even if some experts want to believe these instances don’t affect its volatility. Bitcoin completed the first halving in 2012 when the reward for miners was cut from 50 BTC to 25 BTC. Its price went from $12 to $1,075 in less than a year, and the project started drawing attention, especially among investors looking for lucrative portfolio additions. Financial experts associate the price increase with a drop in the currency’s inflation rate, which reached 12% in January 2013.

Bitcoin completed the second halving in 2016, following a similar pattern. The miners’ reward was cut from 25 BTC to 12.5 BTC, and the digital currency experienced a 294% price spike. If it was worth $650 in 2015, it reached $2,560 after the halving. Similarly to the first halving, its inflation rate dropped lower than in the previous years to 4.1%.

The third halving took place in 2020 when the reward reached 6.25 BTC and the asset’s price spiked to $55.847 and its inflation rate was 1.8%. It’s easy to see a pattern here and to expect the last halving to lead to similar results.

Bitcoin went through the fourth halving in April 2024, when the mining rewards were cut from 6.25 to 3.125. The network’s hash rate suffered the related changes, but the BTC price hasn’t experienced significant alterations yet. The cryptocurrency traded at around $65.000 around the time of the halving, and it maintained the same levels after the event. However, investors don’t worry because historically, digital assets first experienced price depreciation immediately after the halvings, only to appreciate a couple of months later and reach new all-time highs. The trend has a strong explanation behind it: the event reduced the number of new coins introduced in circulation, so the demand is higher than the supply.

Final words

Major events in the crypto world, like Bitcoin’s halvings or Ethereum’s upgrades don’t seem to have the expected impact on their prices. After these instances, many traders positioned themselves for price volatility, only to be disappointed. Usually, big volatility is the result of the market sentiment when expectations fail to materialize.

Digital currencies remain undoubtedly volatile as an asset class, but this doesn’t mean that halving is the factor that causes them to act like this. When creating portfolios, investors should research the way cryptocurrencies relate to other assets and ensure they diversify their nature to limit risk.

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