The fourth Bitcoin halving is scheduled to take place somewhere in April or May 2024. Many investors typically assume that the BTC price will rise as a result of this event. However, according to the Head of Institutional Research at Coinbase, it is not necessarily guaranteed.
What is Bitcoin halving?
Bitcoin halving is an automatic mechanism designed to curb the inflation of BTC value. Every four years, or after 210,000 transaction blocks, this mechanism halves the rewards for miners. As a result, the amount of BTC entering the market decreases over time.
During the upcoming halving in 2024, the rewards for miners successfully mining a Bitcoin block will reduce from 6.25 BTC to 3.125 BTC. This scarcity of Bitcoin is often compared to gold mining, where the more gold is extracted from the ground, the less remains. Consequently, the influx of new gold decreases as more is extracted from the ground.
The presumed price increase of Bitcoin due to halving is not so straightforward.
As Bitcoin becomes scarcer while demand remains the same, many see halving as an obvious cause for price growth. However, David Duong is more cautious. The researcher examined all the surrounding factors during previous halvings and shared his findings in a recent report.
Duong notes that previous halvings were “contaminated” with external factors that significantly increased liquidity in the world. In such situations, risky assets, including Bitcoin, often benefit. The researcher states:
“In 2012, the Fed began purchasing mortgage-backed securities and long-term government bonds as part of QE3 [quantitative easing]. In 2016, Brexit may have sparked fiscal concerns in the UK and Europe, serving as a catalyst for buying Bitcoin. In 2020, central banks and governments worldwide responded to the COVID-19 pandemic with unprecedented stimulus measures.”
Overall, according to the researcher, there is some evidence that the halving itself has a positive impact on the BTC price. However, there is still a lack of evidence to establish a definitive trend:
“The limited supportive evidence makes this relationship somewhat speculative in our view. With only three halving events in the past, we still need to see a clear pattern emerge, especially since previous events were contaminated by factors such as global liquidity measures.”
