Kripto para piyasası continues to grow due to its unique structure, and the largest cryptocurrency Bitcoin (BTC) continues to be at the forefront of discussions. Bitcoin’s unique economic model, driven by block reward halvings, attracts the attention of the general financial world. Since its inception 14 years ago, the Bitcoin network has undergone only three block reward halvings, with 29 out of a total of 32 block reward halvings remaining, according to data provided by crypto content creator Shalva Machitidze. This situation encourages market participants to focus on how the asset will be affected in the future.
First and foremost, it should be noted that the block reward halving is one of the key features that sets Bitcoin apart from traditional fiat currencies, due to its predetermined issuance program. Specifically, approximately every four years or after every 210,000 blocks mined, miners’ block rewards, which are received in BTC, are reduced by 50% as they validate transactions and add them to the Bitcoin Blockchain.
In the early days of Bitcoin, miners were receiving 50 BTC per block, but after the first block reward halving in 2012, this reward was reduced to 25 BTC. The subsequent block reward halvings in 2016 and 2020 then reduced the block rewards to 12.5 BTC and 6.25 BTC, respectively. In addition to reducing miner rewards, the block reward halving also affects the circulating supply of BTC. This, in turn, impacts supply and demand, leading to volatility in price. Furthermore, by reducing the creation of new BTC in line with its deflationary design, it curbs the inflation of Bitcoin.
With the remaining 29 block reward halvings, Bitcoin’s predetermined scarcity is often cited as one of the primary factors contributing to the potential increase in its value. This scarcity tends to drive up the price of Bitcoin when combined with increasing demand. Historical data shows that Bitcoin’s price has experienced significant increases after previous block reward halvings. After the first block reward halving in 2012, Bitcoin’s price rose from below $12 to around $1,000 within a year. Similarly, following the block reward halving in 2016, Bitcoin’s price surged to around $20,000 by the end of 2017.
After the most recent block reward halving in May 2020, Bitcoin’s price climbed from around $8,000 to nearly $69,000 by the end of 2021. These past price patterns fuel optimism among investors and speculators, leading them to eagerly await the next 29 block reward halvings and their potential effects on the price of the crypto king. In this context, 2024 will be the next major focal point.
Can the Next Block Reward Halving Trigger a Price Rally?
It is worth noting that past block reward halvings have not only triggered bull markets. Larger macroeconomic factors, particularly favorable liquidity conditions resulting from institutional capital inflows into the asset, play an active role in price rallies. For example, Bitcoin’s price suffered a severe blow last year due to high inflation and interest rate hikes.
After the last three block reward halvings, Bitcoin reached all-time highs within 12 to 18 months before entering significant downtrends. Interestingly, these bear markets tend to lose momentum approximately 15 to 16 months before the next block reward halving. For instance, Bitcoin started to recover in 2023, gaining almost 55% and breaking free from the effects of the previous year’s bear market. This trend aligns quite well with the historical timing of previous recoveries in price.
