Bitcoin’s 3rd Halving Event Takes Place: Will History Repeat Itself?

Bitcoin has just gone through its third ‘halving’ since it launched 11 years ago. The event takes place roughly every four years to cut the reward given to miners for solving complex mathematical problems using high-powered computers. Halving was written into bitcoin’s code by its pseudonymous creator Satoshi Nakamoto in order to manage inflation. Monday’s halving event means that the reward for solving algorithms has been cut by 50%: from 12.5 to 6.25 new coins. Currently roughly 18.5 million bitcoin have been mined out of 21 million.

Looking at the bitcoin daily chart above, we can see that price actually sold off in the days leading up to the event. Historically, the halving events have been followed by major rallies in price over time. Debate rages over whether the latest halving event will trigger another bull run, or if the event is already priced in. 

Some analysts argue that after the halving, the incentive for miners is dampened and they may shift their attention to other cryptocurrencies, which could put pressure on Bitcoin’s price. Meanwhile, bulls point to the unprecedented monetary stimulus that has been unleashed to offset the economic fallout from the Coronavirus pandemic. As traditional currencies are devalued and inflation fears rise, many investors are looking to alternative stores of value such as bitcoin and gold.

Bitcoin soared above the major psychological level of $10,000 last week, after Bloomberg reported that legendary investor Paul Tudor Jones embraces bitcoin as a hedge against inflation.

The November 2012 halving resulted in the reduction of the mining reward from 50 bitcoins to 25 and in July 2016 it was further cut to 12.5 bitcoin. Here’s the monthly chart showing what happened after the November 2012 halving:

And here is the monthly chart showing the aftermath of the July 2016 halving:

In both cases we can see that the halvings preceded rallies, but the large moves did not take place immediately. In the case of 2012, the big spike in price did not come for a year – until November of 2017. After the 2016 halving, the dramatic rise in price began in May of 2017. Even if the bulls are right, they may have to wait some time, if history is indeed to repeat itself, or at least rhyme.