Why would the halving affect price?

Hello, I have been hearing for a long time that Bitcoin halving leads to a price increase, but that doesn’t make any sense to me.

People seem so confident about this, but I can’t find any reason to believe it will happen again. Yes, it happened the last three times, but that’s a very small sample size, and it was when Bitcoin was relatively insignificant.

Sure, the amount of new Bitcoin being created will be smaller, but that amount is tiny compared to the volume of Bitcoin traded daily.

The only thing I see happening is many miners going out of business and a lot of mining hardware becoming idle. Members of the Bitcoin community who contribute will go broke. I don’t see how that helps the price or user adoption.

Can someone explain why Bitcoin halving might cause a price increase?

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It is predicated on the notion that miners selling what they mined to cover costs and profits is a significant contributor to downward pressure. It is not unreasonable because, while the daily volume is high, it includes both buyers and sellers. Miners are nett sellers.

Halving means that fewer bitcoin enters exchanges per unit of time, which means less selling pressure and an increase in numbers based on basic supply and demand.

That is the macro view; it has nothing to do with the profitability of individual miners.

On a micro level, many miners will have to shut down, but only until a) the price rises and b) the difficulty decreases sufficiently to make it lucrative again.

Here’s why the Bitcoin halving affects the price: The halving reduces the number of new bitcoins entering circulation by 50%, effectively cutting the supply growth rate in half. This creates a supply shock, as demand doesn’t change immediately but the available supply on the market decreases. Historically, this has led to significant price increases in the 12-18 months following a halving. The last three halvings in 2012, 2016 and 2020 were followed by the price rising 93x, 30x and 8x respectively from the halving date to the cycle peak. While past performance doesn’t guarantee future results, the economics of reduced supply growth while demand remains steady or grows suggests higher prices are likely after the next halving in April 2024. However, some analysts argue the effect may be muted this time as the halving is already priced in and other factors like venture capital funding and overbought conditions could lead to a short-term price drop. But over the long-term, the halving’s impact on Bitcoin’s scarcity and stock-to-flow ratio should be bullish for the price.