Price Effect of the 2024 Bitcoin Halving

This post discusses the potential price effect of the upcoming Bitcoin halving and how you can make profits big time

Bullish Case

Lower new supply after the halving, when the miner subsidy will decrease from 6.25 to 3.125 BTC. Dropping from 900 to 450 BTC per day. Creating a positive price dynamic, as postulated in the Stock to Flow model. The past three halvings had a run-up in the 360 days before the halving. But foremost a bullish development in the 360 days after the halving. Ruling out the first halving in 2012 with its crazy pump, BTC went up by 301% and 541% in the 360 days after the 2016 and 2020 halving events.

Neutral Case

The efficient market hypothesis postulates that the halving is already known and priced in. We also have more mature and experienced market participants than in previous halvings. The decreased supply is negligible because newly generated BTC constitutes only a tiny fraction of the total trading volume. Based on the second and third halving, we observe a declined Miner subsidy / Total trading volume. While this share was 2.9% before the 2016 halving, it dropped to 0.05% after the third halving in 2020. Most of the change has been driven by the massively increased trading volume.

Negative Case

The average cost to mine one BTC is about $26.5k with the current subsidy of 6.25 BTC and an average fee rate of 0.31 BTC. The cost will (almost) double after the halving. Inefficient miners have to leave because of the decreased miner subsidy. Hash rates go down and users may worry about the security budget, causing prices to decrease.

However, there is a counter effect: Ordinal inscriptions generate a higher demand for block space by paying inscription fees According to Genii Data, ordinals account for 2.2% of the decrease in miner subsidy (denoted Ordinals Halving Coverage, OHC). In the most active month of May, the OHC was 11.3%.

Key takeaway

The positive scenario is the most convincing one even though it’s hard to conclude from three events. The periods around the last Bitcoin halvings were enormous bull markets. With at least 6.8x two-year performances around the halvings. You are not too late, given that most of the increase happened after the halving event.

Data

• Bitcoin price/volume data: Yahoo Finance (since 2014) and Bloomberg (before that)
• OHC ratio: from OrdData‘s dashboards
• Mining costs: What is Bitcoin Mining article