Bitcoin Halving: Expert Analysis and Price Predictions

What is the Bitcoin halving?

Bitcoin is created through a process called mining, in which Bitcoin miners compete with each other to solve an algorithmic problem. Once the problem is solved, a new block is added to the blockchain, and the miner who solved the problem is rewarded with a set amount of newly generated Bitcoin. When Bitcoin was introduced in 2009, the reward rate was 50 Bitcoin for every block mined.

The Bitcoin halving is scheduled to happen approximately every four years or after the mining of 210,000 blocks; the halving is not triggered by the passing of a specific amount of time, and the actual time between halvings can vary slightly due to fluctuations in mining difficulty and network hash rate, which is a measure of the total computational power being used to mine Bitcoin.

This year’s halving is set to take place on or around April 20, 2024. The date is based on this estimate, which changes with the mining of each new block. Following the three previous halving events, which occurred in 2012, 2016 and 2020, the reward rate now sits at 6.25 Bitcoin. The upcoming halving will drop the rate even further to 3.125 Bitcoin per block.

The principles of the halving are written directly into Bitcoin’s network. By reducing block rewards, the halving slows down the rate at which new Bitcoins are created. This controlled supply is intended to combat inflation so Bitcoin can maintain its value over time. As the halving events progress, the supply of new coins will gradually decrease until all 21 million Bitcoins are in circulation.

How do halvings impact Bitcoin miners?

Bitcoin’s halving has significant implications for the cryptocurrency’s mining activity and supply because of how Bitcoin mining works.

The mining process, also known as block time, typically takes around 10 minutes. To maintain a consistent block time, the Bitcoin network adjusts the mining difficulty based on hash rate, a measure of computational power used to mine Bitcoin and process transactions. An increase in power indicates that more miners are competing to create new blocks and earn Bitcoin rewards, so the puzzle becomes harder. When fewer miners are competing, the puzzle becomes easier. This ensures that new blocks are created at a steady rate, regardless of how many miners are competing to create them.

Historically, the hash rate has risen leading up to halving events, only to drop off in the weeks after as inefficient miners are weeded out.

“One of the things that happens is that these miners that have less efficient equipment have to get out of the business, right? If they have old equipment and equipment that absorbs too much energy, they're not going to be able to pay for that when the mining reward drops,” Eberle explained.

Currently, hash rates that he describes as “record-high” are driven by large mining companies introducing new, faster and more efficient machines while still utilizing older machines that may become obsolete in a few months. Mining companies have already been making moves to this end in 2024. For example, Bitcoin miner Riot Platforms bought new miners in anticipation of the halving on February 27, the same day that CleanSpark completed the acquisition of three data centers in Mississippi.

This efficiency benefits investors as miners consistently sell Bitcoin to cover operational costs and make a profit when production costs are lower than the selling price.

CoinShares suggested in its 2024 Crypto Outlook report that miners may be in “better shape” in 2024 due to reduced debt, larger scale of operations and equity finance options. Bitcoin’s price has also been bolstered by the approval of spot Bitcoin ETFs and the US Federal Reserve’s current plans to ease monetary policy later this year.

The authors of the report, which was released in January, predicted that 2024 will be a “dual cycle year.” The sector began the year in a rebalancing phase, which CoinShares expects to persist until after the halving. At that point, it will enter the mining gold rush as the price of Bitcoin outpaces miners’ ability to deploy new hash rate. The firm estimates that mining 1 Bitcoin will cost approximately US$37,856 after the halving.

“So, from an investor standpoint,” Eberle continued, “the reason the halving is substantial is that these miners, to pay for their ongoing operations — whether it's electricity costs for their warehouses (or) buying new equipment — they're a consistent seller of Bitcoin. As long as their cost to produce Bitcoins is lower than what they’re selling for, they make a profit. Inefficient miners will be forced out if they don't do those upgrades.”

How do halvings impact the Bitcoin price?

Bitcoin often surges leading up to the halving, although, with only three halvings in history, it’s difficult to assertively identify price trends.

How to invest ahead of the Bitcoin halving?

Peter Brandt, an analyst and the CEO of Factor, predicted on X, formerly known as Twitter, that the price of Bitcoin could go as high as US$200,000 by September, a 66 percent jump from his previous estimate of US$120,000.

“We believe new all-time highs will be made,” Eberle said. “We think it'll go (on a run) once that happens because of the ease with which one can buy the ETFs now. …The retail FOMO that comes in could drive the price to some incredible levels, and then I'm sure we'll have another pullback.

“But I've seen estimates anywhere from US$75,000 to US$150,000, which I think are reasonable in the next 12 to 18 months. Some of these bigger numbers, I think those are for headlines more than anything else. But we'll be happy, we're getting into all-time highs and people not being down on the space. I think that would be a positive.”

For those looking to invest in Bitcoin, Eberle shared his advice for using Bitcoin to balance out an investment portfolio, specifically its effect on the standard 60/40 equity bond portfolio, which can be rebalanced quarterly by selling the asset that performed better and buying the other asset to enhance performance over time.

Eberle explained that regularly rebalanced portfolios can benefit from volatile assets, and said studies show that including a 3 to 5 percent allocation of Bitcoin in a standard 60/40 portfolio could decrease overall portfolio volatility and increase expected returns. This is because the non-correlated, highly volatile asset makes the funds move back and forth more during rebalancing.

“One area that's critical to portfolio management, whether it has to do with Bitcoin or anything, is if the volatility of an investment is keeping you up at night, it's not the volatility of the investment, but rather the size of your allocation to that investment,” Eberle advised.