Bitcoin's fourth halving is imminent, will the encryption market repeat "yesterday's story"?

Author | Terry

Produced | Vernacular Blockchain (ID: hellobtc)

With the constant changes of the "atypical bear market", the never-fading "halving" narrative in the encrypted world is gradually approaching. According to the fourth Bitcoin halving, there are about 9 months left, and the latest is expected to be April 26, 2024. At that time, the block reward will be reduced from 6.25 BTC to 3.125 BTC. **

Everything in the past is prologue. As one of the most important narratives in the encryption industry, "Bitcoin halving" has always been a good medicine to boost market confidence. **Nowadays, a bear market can be heard faintly, and the bull's footsteps are lingering. Will this round of halving cycle have the same rhyme as before? **

**01、**Halved historical reincarnation

For the encryption industry, each round of halving is a grand event, especially the first two halving cycles of Bitcoin, which have seen an astonishing increase of dozens of times (In the short term, after the two halvings, there was a short-term decline accompanied by the exhaustion of profits, but then the adjustment was completed and a long-term upward trend emerged).

However, the third halving will begin in 2020. As the number of employees in the industry, market attention, and the improvement of supporting infrastructure have all improved significantly compared to before, Bitcoin is no longer a niche product confined to the geek circle, and has begun to interact with more external factors.

Brief summary:

The first two halvings (2012, 50BTC to 25BTC; 2016, 25BTC to 12.5BTC) Before, geeks in the circle were more concerned about the possibility of Bitcoin as electronic cash;

Third halving (2020, 12.5BTC to 6.25BTC)During the cycle, the focus on Bitcoin has shifted to its attributes as a payment tool, which has also sparked a series of debates (the subsequent BCH fork is almost the top stream in the circle);

In the fourth halving cycle (2024, 6.25BTC to 3.125BTC), Bitcoin has become an alternative asset, and attention to traditional institutions and capital layout has become the main theme;

Therefore, compared with the previous two halvings, the popularity of Bitcoin’s third halving is unprecedented. At the same time, the overall political and economic environment in the world during the third Bitcoin halving also affected its performance:**

Under the influence of macro factors, from March 12th to March 13th, two months before the halving on May 11th, Bitcoin started to go down from $7,600, and first fell to $5,500. In the follow-up, the support point was broken all the way, and the lowest dropped to 3,600 US dollars. The overall market value evaporated 55 billion US dollars in an instant, and the entire network exploded more than 20 billion yuan, accurately realizing the "price halving".

However, after the halving in May, DeFi Summer started a new round of bull market cycle, and Bitcoin also went straight to $60,000, which was nearly 20 times higher than the lowest point before the halving.

In general, according to the law of the historical halving cycle, from a traditional point of view, the price of Bitcoin will return to half of the price of the previous bull market when it is halved—that is, by April 2024, the price of Bitcoin may be around $30,000.

After the halving, it is very likely to start a new bull market cycle. It may be difficult to achieve a 10-fold increase in the current volume, but it is still worth looking forward to the $60,000 that surpassed the high point of the last round of bull market.

**02、**Same and different new variables

But at the same time, under the background that Bitcoin has experienced three halvings, the block reward has been reduced to 6.25, and the number of mined has reached more than 19 million. In fact, many situations and many things have come to a new perspective.

Especially in addition to this round of Bitcoin halving, the entire industry and Bitcoin itself have some new variables worthy of attention compared to previous halvings.

(1) Ethereum PoW to PoS

First of all, last year, Ethereum completed the elephant turn from PoW mechanism to PoS mechanism. Now, as the two largest currencies in the encrypted world, Bitcoin and Ethereum have also become the leading currencies representing PoW and PoS respectively, thus bringing the competition between the two into a new era.

After switching to PoS, the newly added Ethereum will only be produced from PoS pledges. According to current data estimates, after the upgrade of Ethereum to the PoS mechanism in The Merge, theoretically, about 660,000 new Ethereum will be added to PoS every year.

However, according to the ultrasound.money data in the above figure, since The Merge, the circulation of Ethereum has not increased, but has decreased by nearly 300,000, completely entering the era of deflation, and the current annualized deflation rate is 0.289%.

In addition to benefiting from the support of on-chain destruction after the upgrade of Ethereum to London in 2021, the most important thing is that under the PoS mechanism, the new ETH produced by Ethereum every year is far less than that of the PoW mechanism:**

Under the PoW mechanism, nearly 5 million ETHs are newly produced every year, which is equivalent to nearly 8 times that of the PoS mechanism (660,000). If estimated based on this data, Ethereum will still be in a state of inflation, and the annualized inflation rate is as high as 3.26%.

Therefore, the conversion of Ethereum’s PoW to PoS, combined with the support of on-chain destruction, has successfully entered the era of deflation. Compared with the effect of Bitcoin’s halving, the impact on the supply side is undoubtedly more direct. To a certain extent, it will weaken the attractiveness of Bitcoin’s halving. This is also one of the biggest variables in this halving compared to the previous one.

(2) Fee income

According to Bitcoin’s halving rules, the block reward starts at 50 bitcoins, and the rule is that it is halved every four years. It has been halved three times to 6.25, and the next halving will be in 2024. This will continue to decrease until 2140. Bitcoin will no longer have block rewards;

The handling fee will always exist, so after rounds of halving, the block reward will gradually decrease or even approach to nothing, and the income of miners in the future will become very simple, only the handling fee reward.

Since the beginning of this year, the prosperity of the Bitcoin ecosystem, especially the BRC20, has set off a new wave of "BitcoinFi", and the activity of internal transactions in the Bitcoin ecosystem has reached a new peak, thus boosting the surge in Bitcoin's fee income.

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Among them, the BTC mining fee income on May 8 hit a new high in the past five years, reaching 683.36 BTC (about 19.08 million US dollars), accounting for 40% of the total income of miners on that day.

The historical average data of miners’ fee income is often only about 2%, but the average data in the past three months has reached about 8%, setting a historical record (although the proportion of fee income recently fell back to the previous level of about 2%).

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However, as subsequent block rewards gradually decrease until they tend to zero, the importance of handling fees will become higher and higher until they become the only source of income in the end.

The BRC20 in the first half of this year is equivalent to a preview in advance. Regardless of whether it is successful or not, with the subsequent Bitcoin halving, the exploration on this road is bound to attract more attention.

**03、****What is the impact of this halving? **

In fact, in addition to the halving of Bitcoin, after the conversion of Ethereum to PoS, the old Tokens that started to adopt the PoW mechanism this year are also facing their own "halving" nodes:

Litecoin’s time node is recent, and it is expected to be halved on August 3 this year-block rewards have dropped from 12.5 to 6.25, and the secondary market performance of Litecoin has also fluctuated widely recently, but the overall performance is indeed better than most other assets.

**BCH is similar to the time node of Bitcoin. It is expected to be halved on April 5, 2024. **The block reward has dropped from 6.25 to 3.125. Recently, BCH has also ushered in a wave of sharp rise.

This also provides enough room for imagination for the Bitcoin halving in 2024, and the capital in the circle has always liked to collectively gamble on the "halving event". Factors such as growing computing power, new hardware, and the upcoming reward halving will determine the overall growth of the industry and Bitcoin, especially now:

And as of the latest Bitcoin mining difficulty adjustment at block height 798336-** Mining difficulty has been greatly increased by 6.45% to 53.91T, a new record high, and almost doubled compared to a year ago. **

However, under the background of the major issue of carbon neutrality and the soaring global energy prices this year, the biggest narrative difference between PoS and PoW is that the PoS network consumes less energy and is "greener".

Of course, PoW has a unique advantage in the face of increasingly tightening regulation-** So far, PoW-based cryptocurrencies have been characterized as commodities, which comply with the old regulatory rules, while PoS currencies have the regulatory risk of being classified as securities. **

**04、**Summary

In general, we are now at the waist of a new round of halving cycle-there is still a window of more than half a year before the Bitcoin halving node, and there may be a reaction period of one to two years before the market reaction after the halving occurs.

This may also be the first (or second) Bitcoin halving "event" that most practitioners and investors in this round have personally witnessed and experienced. However, it is still unknown what will happen to Bitcoin and the current cycle after the next halving.