The cake reward halving of Bitcoin (BTC) has long been touted as an optimistic factor to drive the curt-term cost trend of BTC in the first half of 2022. Historical data, however, shows that the halving does not necessarily coincide with an immediate upsurge in the price of Bitcoin.

On the Bitcoin network, miners create blocks that record Bitcoin transactions to essentially verify and ostend payment information using computing power. Through large-scale mining centers filled with ASIC mining chips and sophisticated equipment, miners apply a large corporeality of electricity and have high maintenance costs in club to mine BTC. Individual or modest producers can mine BTC through pools — i.e., a grouping of miners that work together by contributing their computing power to mine Bitcoin blocks.

Every four years, the reward of mining Bitcoin halves, dropping the revenues of miners by 50%. Often, miners prepare for halvings by saving six to 12 months of greenbacks every bit a buffer to ensure that even if Bitcoin'due south cost drops after the halving, their businesses can be sustained.

What does the historical information say?

The first halving of the Bitcoin network occurred on Nov. 28, 2022. At the time, at that place were only a handful of major cryptocurrency exchanges that facilitated Bitcoin trading, and it was notwithstanding relatively difficult to purchase Bitcoin. For that reason, many analysts made the argument that market data prior to 2022 — when there were a limited number of exchanges — may non be reliable.

BTC USDT 1-month chart. Source: TradingView

BTC USDT ane-month chart. Source: TradingView

Later the first halving in 2022, the toll of Bitcoin took about 11 months to enter a parabolic rally, securing extended upwardly momentum. In November 2022, the price was hovering at around $12 on Bitstamp. In Nov 2022, Bitcoin had climbed to as high every bit $1,100, recording a 7,562% increase in price.

The second halving of the Bitcoin network occurred in July 2022. Coming off of a abrupt price refuse from $1,100, the price of BTC stabilized at around $600. The price and then started to run across a strong rally in May 2022, exactly 11 months after the halving occurred — only like in 2022. So, the by ii halvings prove that Bitcoin'due south price tends to run across a vertical rally 10 to 11 months later the halvings took place, just non immediately later on.

Why does the Bitcoin price rally many months later on halvings?

Large miners tend to save a greenbacks-buffer for upwardly to 12 months prior to a cake advantage halving, equally the hazard of the BTC price going downwards subsequent to a mining revenue cutting is always nowadays. But, small miners exercise non have the financial means or resources to fix for the halving in advance.

Diverse information points, including Digital Assets Data'southward 21-Day Miner's Rolling Inventory, show that miners have been selling more BTC than they mine in recent weeks. As hinted by major investors such as Joe007, arguably the biggest whale on Bitfinex, the potential sell-off of BTC by miners has not been priced into the marketplace.

When pocket-size miners continue to sell their Bitcoin, it applies increasing selling pressure on the cryptocurrency exchange market. Some miners tend to sell crypto assets through the over-the-counter market; over time, nonetheless, OTC data as well gets reflected by the cryptocurrency commutation market.

In mid-March, Joe007 warned that "overleveraged miners" will be unbelievably hurt by the time the halving comes, which could interpret to the capitulation of some miners and, ultimately, the sell-off of Bitcoin through both exchanges and OTC platforms.

Why practice investors expect the Bitcoin price to increase after the halving?

The main reason behind the widespread expectation of a short-term increase in the price of Bitcoin following the block reward halving in May is that the breakeven cost of Bitcoin mining increases to anywhere between $12,000 to $fifteen,000, every bit TradeBlock's head of research, John Todaro, stated earlier in 2022. Many investors theorized that since it costs $12,000 to mine Bitcoin, it would be logical to have the BTC price to a higher place $12,000 afterwards the halving.

While BTC could eventually enter the $12,000 to $15,000 range in the time to come, major miners set large cash-buffers precisely as a countermeasure against a possible dip in the price of Bitcoin subsequent to the halving.

Todaro'due south enquiry likewise found that newer mining equipment is consistently existence developed by major companies similar Bitmain and Canaan, which too makes information technology a variable in calculating the breakeven toll of mining. Efficient mining equipment, together with cheaper electricity and resources, can essentially subtract the breakeven price of mining, fifty-fifty subsequently a halving occurs, according to enquiry past TradeBlock.

For large miners that accept the cash-buffer and resource to speedily obtain new mining equipment, the eventual drop in mining difficulty through automated adjustments make it possible to sustain their businesses through the early months following a halving.

What's next for BTC?

If the Bitcoin cost trend follows historical performance, as seen in 2022 and 2022, then Bitcoin should increase significantly in mid-2021, ten to 11 months out from the halving scheduled to be activated in May. As such, there is a strong possibility that price volition remain well beneath the breakeven price of mining over the next few months.

All the same, the popular theory that the hash charge per unit of the Bitcoin network could reverberate the decline in mining revenues — and thus lead to a "death spiral" to severely downgrade the Bitcoin network security — has not been proven to be accurate, based on historical data and on-chain research.

Despite the halving beingness one month out, the hash charge per unit of the Bitcoin network has dropped only to December 2022 levels. Considering the network's hash rate has consistently achieved new record highs throughout the past two years, there is a low probability that the halving would accept a noticeably large negative affect on the hash charge per unit.

Source: Blockchain.com

Source: Blockchain.com

A study by BitMEX found a variety of scenarios that could play out, such equally: "The halvening has a much larger impact on the network hashrate, causing a 47% turn down" or i in which "the halvening only caused a 12% drib in the network hashrate."

That ways that even if Bitcoin's cost remains below the price to mine BTC and stays that way for the next three to four months, and given that large miners tend to fix in advance and that hash rate rarely drops by a large margin, the hash charge per unit of the Bitcoin network is likely to remain stable until the BTC toll begins to reflect the cost of mining.

The halving may milkshake out overleveraged and pocket-size miners in the near-term, the same mode a drop in the price of Bitcoin can milk shake out overleveraged traders, as information technology is not likely to trigger an immediate price spike of BTC. Just over the medium to long term, the fundamentals of the Bitcoin network and mining ecosystem are expected to remain strong.

Both minor and major acquisitions in the mining sector are ongoing despite the market dip and the stagnation in the cryptocurrency market, as seen in a $two.8 meg acquisition of a Bitcoin mining centre in Quebec, Canada on March 30, 2022. This suggests that miners expect a short-term drop-off in the global cryptocurrency mining sector, but a recovery over the long run.