Learn more from the Sygnum digital nugget about the Bitcoin halving

Digital Nugget: Bitcoin halving

Bitcoin has a lot of positive fundamental drivers currently. The upcoming Bitcoin halving is considered to be one of these. In this note, we explore the impact the halving is likely to have on Bitcoin.

More background on the Bitcoin halving is available here.

Bitcoin halving – does it matter?

There have been many reasons for Bitcoin’s outperformance and growing dominance over the past year.

The Bitcoin network has seen innovation accelerate recently. This is broadening the use cases for the protocol and increasing transaction volumes. It also increases the transaction fees earned by miners, further improving the network’s security.

Meanwhile, global macro instability has highlighted Bitcoin’s store of value properties.

The recent launch of Bitcoin spot exchange-traded funds (ETF) in the US, including one from the world’s largest asset manager, BlackRock, is expected to drive further demand for Bitcoin.

Bitcoin is also exempt from the challenge of potentially being considered a security in the US, a concern for most crypto assets.

Most market commentators refer to the upcoming Bitcoin halving as an additional important driver of further upside, based on the historical effect of past halvings. However, the causes of this historical effect have diminished in significance and may no longer play a part.

What is the “halving”?

Bitcoin’s hardcoded supply schedule dictates the amount of newly minted Bitcoin issued to the miners that are securing the network. This block validation reward declines at regular intervals until all 21m Bitcoin have been issued.

Sygnum digital nugget - Bitcoin prices

Source: CoinMarketCap

The number of blocks mined determines the interval, and the rewards are halved after each 210,000 blocks. The miners’ rewards started at 50 Bitcoin for each block validated when the genesis block was mined in 2009.

The first halving of block rewards occurred on 28 November, 2012, with the block reward falling to 25 Bitcoin. On 9 July, 2016, the reward dropped to 12.5 Bitcoin and on 11 May, 2020, it dropped to 6.125 Bitcoin per block mined.

Based on the pace of blocks mined on Bitcoin to date, the halvings have occurred roughly every 3.5–4 years, and the next halving is expected to occur in April 2024.

Fundamental value

Historically, the halvings occurred during bull cycles, and there is a widespread belief that the bull markets were triggered by the halvings.

Indeed, the periods straddling past halvings delivered very strong performance, starting around a year before the halving and continuing for another year or two.

However, as Bitcoin’s supply schedule is entirely transparent and hardcoded into the protocol, there is no impact on Bitcoin’s fundamental value when halvings occur.

This point is somewhat theoretical though, as determining Bitcoin’s fundamental value requires making assumptions about future demand, where many drivers are hard to predict. This was especially the case in the very early days of Bitcoin, but it still remains largely true, and Bitcoin does not tend to be traded based on assumptions about its valuation.

Fund flows

Fund flows in the market have been a strong driver of the Bitcoin price. This was especially true when Bitcoin trading volumes were small.

Historically, a drop in selling due to fewer Bitcoins issued to miners has significantly impacted the supply/demand balance of Bitcoin on exchanges.

Initially, miners were the dominant holders of Bitcoin, and at the first halving, Bitcoin’s market capitalisation was only USD 130m – with the circulating and liquid capitalisation much smaller yet.

The total supply issued at the November 2012 halving was 10.5m Bitcoin, with an annual issuance of close to 2.7m Bitcoin before the halving. This was a considerable percentage of the total supply issued and even more of the liquid supply. When the halving reduced the annual issuance to below 1.5m Bitcoin per year, the reduced selling pressure from miners was an important driver of Bitcoin price appreciation. The price of Bitcoin rallied over 400 percent in anticipation, and continued to rise after the halving, trading another 10 percent higher one month later, and 130 percent higher three months later.

The impact was less but still very significant at the next halving in July 2016. As the total supply gradually increased to 15.75m, the annual issuance was still 10-15 percent of the outstanding supply, and Bitcoin rallied over 200 percent in the run-up to the halving. However, it was “sell the news” as Bitcoin traded 5-10 percent lower in the months following the halving event.

After the 2016 halving, the annual issuance declined to around 4 percent of the total outstanding supply, and even if the miners sold all of the newly issued Bitcoin, absorbing this amount of selling over the year did not impact the price – especially as traded volumes had increased significantly by then. However, as the narrative “halvings are bullish for Bitcoin” took hold, Bitcoin still traded up 150 percent ahead of the next halving in May 2020. The performance post-halving was also positive, with the price up a further 10-30 percent in the months that followed. However, this performance was partly due to the recovery after the Covid-induced March 2020 crash and it was not necessarily related to the halving.

As the next halving approaches, the impact of reduced selling pressure from miners is now negligible to none. The current rate of slightly over 1.5 percent supply issued annually will decline to 0.8 percent. This difference in the hypothetical selling pressure is so small that this amount of selling distributed over a year will not have any perceptible impact on the market.

Currently, around 500,000 Bitcoin are traded per day – down from 1-1.5m during the last bull market. The halving will reduce the daily supply by 450 Bitcoin, which is an irrelevant amount relative to the daily traded volumes. The reduction in supply due to a halving mattered significantly in the past, and undoubtedly it was a key driver of price performance around the first couple of halvings. For the upcoming 2024 halving, this effect will be non-existent.


The narrative “halving is bullish for Bitcoin” had been a driver for the price of Bitcoin ahead of the previous halvings. As the narrative continues to be repeated in the months before the next halving, it may be contributing to the current positive sentiment.

However, as the current rally was triggered by the expectation of the Bitcoin spot ETF approval, it is unclear how much of a difference any sentiment related to the upcoming halving might be making.

As Bitcoin currently has several positive drivers, the impact of the upcoming halving may not be particularly significant or relevant even for sentiment. There are also reasons why halvings now may raise concerns as they reduce miners’ revenues, while energy costs continue to increase. A rally in the Bitcoin price can compensate for the smaller Bitcoin mining rewards received, and the market’s attention is now increasingly focused on how transaction fee income progresses on the Bitcoin network. Transaction fees will ultimately need to replace block rewards and provide the income that miners require to continue securing the network.


When we look at Bitcoin’s history, bull markets have largely coincided with the periods preceding and following halvings.

For the first one or two halvings, the case can be made that the halving itself was a very important contributor to igniting the bull market.

However, when we look at later halvings – in 2016 and 2020 – it is more difficult to assert that they drove the subsequent bull markets.

It is possible that the Bitcoin halving partly triggered the 2016–17 initial coin offering (ICO) boom, as the pre-halving rally may have made it more attractive to issue other crypto assets in the expectation of similar price performance.

But it is hard to make the case that the 2020 decentralised finance (DeFi) summer and the consequent proliferation of crypto use cases were in any way driven by the Bitcoin halving – especially as DeFi and other decentralised applications were primarily built on Ethereum.

With Bitcoin’s relatively short history, it is unclear how much we can read into the co-occurrence of bull markets and halvings. In the case of the more recent halvings, this may well have been mostly a coincidence.


The most important impact of the 2024 Bitcoin halving may now be on miners rather than on the price of Bitcoin.

As miners’ block rewards halve, the economics of Bitcoin mining may change, depending on the price performance of Bitcoin. Unless a continued rally in Bitcoin makes up for the lower rewards, miners may come under pressure, especially as energy costs have also been increasing.

Although increasing substantially recently, transaction fees still only account for 5-15 percent of miners’ revenues. Although it will be another 15-20 years until all Bitcoin is issued and miners’ revenues will come solely from transaction fees, the halving is a reminder that the Bitcoin network needs to earn higher revenues to maintain network security in the long run.

Bitcoin’s use case as a safe haven asset does not generate significant transaction fees as that is fundamentally a buy-and-hold strategy, while Bitcoin payment solutions may use the Lightning network to save on fees and achieve faster execution. Therefore, the recent increase in the pace of innovation on the Bitcoin network and the increased use of the protocol for issuing other token types are significant developments.


The upcoming halving will not change Bitcoin’s fundamental value, nor will it have any perceptible impact on the supply/demand balance on exchanges. Its significance may be misunderstood. While it will be highly relevant for the profitability of Bitcoin miners, it may not be a particularly relevant driver for the price of Bitcoin.

It serves, however, as an important reminder of Bitcoin’s core value proposition of immutable scarcity, and it supports the demand for Bitcoin as a safe haven asset.

In addition to the growing interest in Bitcoin as a store of value, there are numerous positive fundamental drivers in place currently: the pace of innovation, increased transaction volumes and fee revenues, the involvement of the world’s largest traditional financial institutions and the resulting mainstream acceptance and, very importantly, continued inflows into the recently launched ETFs.

Against this backdrop, we may well see a repeat of history, where a bull market straddles a Bitcoin halving.

Read more about crypto assets from Sygnum here.

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