As a professional translator, it is difficult to make any high certainty judgments based solely on the halving. However, on the surface, the halving of Bitcoin, which is a highly anticipated event, has historically been bullish. However, considering the limited number of halving events that can be studied and a closer observation of Bitcoin’s performance in the overall market environment, it is difficult to make any high certainty judgments based solely on the halving event itself. Overall, from a supply perspective, the halving of Bitcoin may not be a tradable event, but it does have structural bullish factors. If there is appropriate macroeconomic support, Bitcoin may experience a rebound after the halving. The consensus on the halving of Bitcoin is bullish, and it is generally believed to be a tradable event. But is this really the case? In this report, we delve into past halving events and analyze supply and macro data for the 2024 halving to gain a comprehensive understanding of what this widely predicted event means for investors.
What is the Bitcoin halving? The halving is a pre-programmed event in the Bitcoin network that refers to the halving of Bitcoin miners’ rewards. This is an important mechanism in Bitcoin’s monetary policy that ensures that only 21 million BTC will eventually enter circulation to prevent inflation and reduce the rate of issuance of new BTC. This program update occurs every 210,000 blocks, roughly every four years. When Bitcoin was launched in 2009, the mining reward was set at 50 BTC per block. With the current halving being the fourth, following the previous three halvings in 2012, 2016, and 2020, the reward has now decreased to 3.125 BTC per block.
It is well known that Bitcoin uses the Proof-of-Work (PoW) consensus mechanism to verify and protect transactions on the blockchain. In PoW, miners compete to solve complex mathematical problems, and the first miner to solve it correctly can add the next transaction block to the blockchain. As compensation for verifying transactions and adding blocks to the blockchain, the winning miner receives newly created Bitcoin as a reward. This reward is “halved” in today’s halving event.
The harsh reality of past halvings: On the surface, halvings have been proven to be favorable for BTC in history. The first graph shows the historical price trends of BTC before and after each halving day (ranging from 1 year before to 1 year after the halving), with the red dashed line representing the volume-weighted average of past halvings and the black line representing the current BTC data. The second graph summarizes the related data in a table. It should be noted that Day 0 on the x-axis represents the halving date, and Day 0 on the y-axis represents 100. The price data of April 17th is used for inference in this article. The logarithmic scale on the Y-axis of the first graph indicates that halving is a bullish catalyst. However, considering that we only have three observations, with the first one being when BTC was only $12.80, and the third one occurring in May 2020 when all risk assets were rebounding from Covid, any interpretation of the data needs to be treated with caution. Additionally, when we look at the average 1-year return of BTC since mid-2011, we find that except for the first halving in 2012, the 1-year returns after the other halvings do not seem to be very satisfying.
The 2020 halving brought up an interesting question about the overall performance of the global market at that time. In the next graph, we compare it with stocks, especially the S&P 500 index, as a benchmark for risk assets. Although the 1-year average rolling return of SPX since mid-2011 is +11.42% (matching the historical price data of BTC), its average performance in the 1 year after the Bitcoin halving is over +27%—more than twice the average!
This highlights an important reality that is often overlooked in common narratives. For the same reason, we cannot draw the conclusion that “the program update in the Bitcoin network that halves the rewards for miners is very beneficial to the S&P 500 index.” We may also not be able to make definitive statements based on BTC’s past performance. Otherwise, by certain metrics, such as hit rates better than the average, you could even conclude that the positive impact of the Bitcoin halving on the S&P 500 index is higher than its positive impact on Bitcoin itself. At the same time, for those interested in volatility, the data shows that volatility does not seem to have a clear relationship with the halving date or cycle.
2024 Halving Theme #1: Long-term holders. Here, we look at the total amount of BTC held by long-term holders and adjust it based on the supply of BTC. Considering that the circulating supply of Bitcoin will continue to increase until it reaches the hard cap limit of 21 million BTC, we divide the amount held by long-term holders by the circulating supply at that time to view it as a percentage of holdings. Although the situation in 2020 is subtle, Figure 5 suggests that long-term holders may take profits before the halving and that a downturn may occur in 2024. This selling dynamic is often attributed to miners, as the halving essentially reduces the income per block by 50%. Miners typically sell part of their treasury when rewards decrease to upgrade their hardware for more efficient mining. This structural selling pressure may be happening now as we approach the 2024 halving.
2024 Halving Theme #2: Exchange BTC balances. Although exchanges do not make directional bets, we still look at the BTC reserves held by exchanges (and possibly their internal market makers) to see if there is any observable pattern around the halving date. The graph shows the total supply of Bitcoin held by cryptocurrency exchanges divided by the circulating supply at that time, and there doesn’t seem to be anything interesting. The only observable trend is a long-term trend. After about 6 years of accumulation, exchange-held BTC started to decline steadily with the start of the last bull market.
2024 Halving Theme #3: Macro background. The correlation between macro conditions and Bitcoin is often debated, but macro cycles, especially US dollar liquidity (as a function of monetary policy/interest rates, risk appetite, etc.), remain the primary drivers of medium to long-term asset prices. With this in mind, we carefully examined the market pricing corresponding to the future 12-month federal funds rate after the halving day in the following graph. It is clear that the 2024 halving is an outlier, with nearly 3 rate cuts priced in, or more simply, the market has expected some form of rate change. Rate cuts are usually favorable for risk assets, but for price trends, what matters is often not the factors already priced in, but the deviation from market expectations—whether it’s inflation data or statements from the Federal Reserve chairman. In the next graph, we compare the actual implied rates settled on each halving day with market expectations to see the accuracy of forward-looking pricing in the previous graph. The data for 2012 and 2020 is relatively unremarkable, with differences of +-10 basis points from the initial expectations. However, 2016 is worth studying because the Federal Reserve raised interest rates twice at that time, and the market did not price it in. Interestingly, Figures 1 and 2 above show that the 12 months after the 2016 halving was the worst month for BTC in terms of performance among the first three halvings and the only month where it performed lower than its 1-year average return. Therefore, as today has already absorbed more than two rate cuts in the next 12 months, the more important driving factor after this BTC halving may be persistent US inflation or anything else that may encourage the Federal Reserve to continue to hold rates steady without further cuts.
Conclusion: We have briefly explored the unique macro background of this halving, but other considerations—such as the recent launch of spot BTC ETFs—are not mentioned in this report. With all the attention Bitcoin has recently garnered, this halving is definitely the most anticipated so far. The institutionalization of Bitcoin has brought new participants, which may change supply and demand dynamics and price trends. It should be noted that newly launched ETFs hold more than 4.1% of BTC’s circulating supply, and MicroStrategy holds more than 1% of the supply. Given that there have only been three previous halvings, it is difficult to draw statistically significant conclusions from past performance to determine whether this is a tradable event. However, from a structural perspective and from a supply perspective, it is undoubtedly a bullish event.