Consider bitcoin halvings, repetitive events that happen roughly every four years that have a consistent track record of serving as a springboard for major price increases. In Bitcoin’s case, these halvings cut the block rewards that miners receive in half, slowing the rate at which new Bitcoin is released. The last halving happened around a year ago, lowering miner rewards from 6.25 BTC per block to 3.125 BTC. Even with such a remarkable shift at play, the price explosion that some have anticipated still hasn’t occurred, leaving many investors and analysts puzzled.
When the last halving occurred on May 11, 2020, the price of Bitcoin was around $8,500. In the months after that occurrence, Bitcoin hit an all-time high above $69,000, a 762% pump. Following the July 9, 2016, halving, Bitcoin’s price was $663. Then by 2017, the cryptocurrency jumped to $2,500, a remarkable 277% jump. This time around, the market’s reaction has been nothing short of amazing.
The story leading up to this halving — and to a lesser extent, the approval of spot Bitcoin ETFs — was that these events would produce an absolutely historic bull run. The reality has been far more lackluster. Bitcoin rocketed up to historic levels nearing $95k, a move of approximately 49% from the time of halving. This percentage increase seems quite paltry when compared to previous post-halving rallies. Some analysts have characterized this as the "weakest post-halving performance on record in terms of percentage growth."
Mining Industry Struggles
The Bitcoin mining industry does an essential service by validating transactions and keeping the network secure. Today it is under attack like never before. Increased mining difficulty, driven by more miners competing for the reduced block rewards, is making it harder for businesses to remain profitable.
"Unlike previous cycles, the April 2024 halving hasn't delivered the explosive price growth many miners expected." - Curtis Harris
The lower BTC price means businesses are being forced to sell off coins more so than before to cover operational costs. This dynamic layers additional pressure onto the market and helps explain the relatively weak price response.
"Most have a stable profit if they are optimizing operating expenses and running a good business," - Shanon Squires
Macroeconomic Factors at Play
There are a few macroeconomic factors that are driving some of Bitcoin’s post-halving underperformance as well. The backdrop of higher interest rates—driven by the Fed’s desire to reign in inflation—has made conditions starkly less hospitable for speculative assets such as Bitcoin.
"One of the main changes [with this Bitcoin cycle] is the current macro regime—interest rates have never been this high." - Dessislava Aubert
Inevitably, high interest rates raise borrowing costs. In response, miners are forced to be more conservative and the pace of new investment in mining operations grinds to a halt. This is in stark contrast to the low-interest-rate environment that characterized the past post-halving rallies.
"These raise the cost of borrowing, make miners more cautious, and slow down investment in new mining operations," - Curtis Harris
Market Sentiment and Future Outlook
Some analysts still consider Bitcoin to be a long-term bullish investment. Based on that understanding, they feel that the approval of spot ETFs is creating a wave of new institutional Bitcoin adoption. That might even set off a greater price surge longer term.
Others caution that the market may need more time to completely adjust to the implications of the halving. They think it should be responsive to the macroeconomic conditions of the day. Investors need to remain long-term-focused. Instead, they need to double down on Bitcoin’s intrinsic value as a decentralized, censorship-resistant store of value.
