Are Bitcoin halvenings priced in? Understanding the price effects of Bitcoin’s supply cut

Key Takeaways

• Bitcoin has historically performed robustly in the year following a halvening event
• However the sample size is small, meaning care should be taken in assessing past performance
• Halvening cycles have also coincided with global liquidity cycles, offering an alternate theory for Bitcoin’s strong post-halvening performances
• The next halvening is slated for April 2024
• The question of whether halvenings are priced in is an intriguing one to analyse

Perhaps nothing sums up Bitcoin’s enigmatic, mysterious and unique makeup like the halvening events. As time goes on, these events have become the subject of fierce debate as to how they affect Bitcoin’s price. Will the sudden dip in new supply boost Bitcoin’s price, as it has in the past? Or are these scheduled events, by definition, already priced in?

Before analysing this question, let us quickly explain the halvenings for the uninitiated. These events refer to the phenomenon by which the block reward for Bitcoin is cut in half every four years (or every 210,000 blocks, to be exact). In such a way, the rate at which new Bitcoins are released suddenly drops 50% every four years. Currently, each new block appended to the end of the blockchain results in 6.25 Bitcoin being released, equating to 900 extra Bitcoin in circulation. Upon the next halvening, this will fall to 3.125 Bitcoin per block, and 1.5625 four years after that, and so on. 

The first halvening occurred in 2012, the second in 2016 and the third in 2020. The next halvening should occur in April 2024. These halvenings will continue approximately every four years until the 64th and final halvening will occur in the year 2140, after which miners will live off transaction fees alone, and no more Bitcoin will be released into circulation. 

This halving schedule means that, despite Bitcoin only being 14 years old, over 92% of the final supply of 21 million Bitcoin is already mined. It also creates the seductive hard supply cap so often referenced by Bitcoin enthusiasts: there will only ever be 21 million Bitcoin, and we know the schedule at which they will hit the market. 

This is set and stone and is familiar to most Bitcoin investors. Where it gets interesting and things open up for debate, however, is how these halvening events affect the price. 

Previous halvenings have preceded aggressive…