According to eToro, halving could herald a surge in BTC

The price of Bitcoin (BTC) recently reached new records. The queen of cryptocurrencies has appreciated by more than 178% in six months with a clear acceleration following Bitcoin Spot ETF Approval on January 10. However, another important factor may well propel BTC to dizzying heights. This is of course the imminent halving which will have an impact on the number of assets created and therefore on their scarcity. But actually, do you know what this event entails? What consequences could there be on the price of bitcoin? The eToro platform recently published its analysis on the subject.

Le Journal du Coin offers you this promotional article in collaboration with eToro.

What is bitcoin halving?

Halving is the process which, at regular intervals, halves the reward allocated to miners which validate a block of transactions on the Bitcoin blockchain. In fact, every 210,000 blocks, or approximately every four years, the subsidy decreases.

This mechanism is registered in the consensus/source code folder and more precisely, in the validation.cpp file. This contains the functions governing the block validation as well as the halving rules.

When the Bitcoin blockchain launched in 2008, the reward distributed to miners was 50 BTC. This may seem huge at current prices, but halvings successive ones have gradually reduced the number of units. Thus, on November 28, 2012, the reward increased to 25 BTC, then to 12.5 in July 2016 and to 6.25 in May 2020. It will therefore be 3.125 BTC around April 19, after the next planing. .

As you have understood, halving only applies to the number of bitcoins paid to miners. This is not a 50% reduction in asset price, as we recently heard on a 24-hour news channel. Conversely, the price appreciated significantly after each reduction in the subsidy.

This concentric vision that eToro offers of halving cycles allows us to visualize that ATHs and Bottoms are very cyclical and correlated phenomena.This concentric vision that eToro offers of halving cycles allows us to visualize that ATHs and Bottoms are very cyclical and correlated phenomena.
Price diagram provided by eToro in his case study

Why is the BTC reward halved?

The reduction of rewards in the consensus mechanism of Bitcoin is a fundamental aspect of protocol design. Several reasons justify the implementation of these reductions, as the company eToro explains to us:

  • Controlled emission: Bitcoin was designed to have a limited and predictable supply, i.e. 21 million units. By reducing the block reward at regular intervals, the total supply of bitcoins is capped. This controlled issuance helps avoid inflationary pressures that could devalue the currency over time.
  • Scarcity and value: By limiting the rate of creation of new bitcoins, the protocol aims to create scarcity, which is a key factor in value. Much like precious metals such as gold, scarcity can contribute to the perception of bitcoin as a store of value.
  • Adoption Incentive: Reducing block rewards serves as a incentive mechanism for early adopters and miners. In the early days of bitcoin, the reward per block was higher, which attracted miners to secure the network and validate transactions. With the reward decreasing over time, it is hoped that the increasing value of bitcoin itself will sufficiently encourage minors to continue to secure the network by validating transactions.
  • Gradual transition to transaction fees: As the block reward drops, it is expected that transaction fees play a more important role in inciting minors. This transition from block rewards to transaction fees ensures the sustainability of network security and encourages the efficient use of block space.

Bitcoin price rises exponentially after halving

In its analysis, eToro proposes to anticipate the effect of a recurring event on the price of BTC based on history. And according to their findings, there are good reasons to be bullish ! Indeed, each halving was the engine of a bullish rally in the months that followed. You will notice that the price appreciated beforehand, then the trend increased exponentially afterwards. Observers agree on an increase in the price the year preceding and the year following the halving.

The division by 2 of the rewards necessarily has a great influence on the price of BitcoinThe division by 2 of the rewards necessarily has a great influence on the price of Bitcoin
Correlation between halving and BTC price. Source : eToro

Thus, during the first halving of 2012, the bitcoin price went from $2.54 a year before to $1,007 a year later, an increase of more than 39,645%. The phenomenon was repeated during the following halvings, in smaller proportions of course, but with remarkable consistency. Additionally, bitcoin consistently marks a new all-time high in the year following the reward cut. This strengthens investor confidence in the future of the king of cryptocurrencies. However, as a good digital asset broker, eToro recommends keeping in mind that past performance does not predict future results.

2024, the year of all records?

However, this year's vintage could well be exceptional ! Indeed, two factors differ from previous vintages, and they would be conducive to unequaled performances.

  • On the one hand, bitcoin did not wait for its halving. It has already beaten its precedent ATH. The buying pressure is such that these price records keep coming one after the other since March 5. This had never happened since the first three halvings.
  • On the other hand, since their approval earlier this year, spot Bitcoin ETFs have attracted billions of dollars of capital. To meet the enormous demand of their customers, issuing companies like BlackRock gobble up 10 times more bitcoins what do the miners produce!

The trend is likely to intensify in April, after the reduction in production. This planned shortage will actually increase scarcity in the face of ever-increasing demand. This situation could at least confirm the improvement that the market has experienced in recent weeks.

It is during these periods of euphoria, even frenzy, that investors' nerves are put to the test. Some people, considering themselves late, rightly or wrongly, will give in to the famous FOMO and compulsively enter the market. This will have the effect of increasing prices a little more. Savvy cryptophiles know that there are cycles and that prices will eventually decline. The crucial question being to estimate the level of the next ATH in order to calibrate profit taking. In the little game of predictions, everyone has their bid. The eToro broker gave us its analysis and recommendations, but only the future will tell us at what altitude will the bitcoin flag be planted.

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