Bitcoin Halving Depth Analysis: A Comprehensive Assessment of Its Impact on Investors

1. Introduction

Bitcoin, as the first and most well-known cryptocurrency, has been a focus of global attention since its inception in 2009. Its decentralized nature, blockchain-based public ledger, and design independent of any central authority ensure the system's transparency and security. The global nature of Bitcoin makes it less susceptible to the direct influence of specific national policies, making it a unique international currency.

Bitcoin Halving refers to an event that occurs every four years, where the reward for newly produced Bitcoins in the Bitcoin network is halved. This is a preset rule in the Bitcoin protocol designed to control the supply of Bitcoin, mimicking the scarcity of gold. For every 210,000 blocks, the number of new Bitcoins received by miners is halved. From the initial 50 Bitcoins per block to the current 3.125 Bitcoins in 2024. This periodic reduction in supply is theoretically expected to drive prices up, assuming demand remains unchanged, thereby having a significant impact on the market.

2. Analysis of Bitcoin Halving Mechanism

Definition and Historical Review of Bitcoin Halving

Bitcoin halving refers to the event in the Bitcoin network where the Bitcoin reward for new blocks is reduced by half after every 210,000 blocks are produced, occurring approximately every four years. This is a core part of the Bitcoin algorithm, aimed at controlling inflation and mimicking the gradually slowing mining rate of rare resources. Since the Bitcoin network began operating in 2009, the initial reward of 50 Bitcoins per block has decreased to 3.125 Bitcoins in 2024. After each halving, the mining reward is reduced by 50%, directly impacting miners' earnings and the entire Bitcoin economy.

The Role of Miners and Their Response to Halving

Miners play a key role in maintaining blockchain security and processing transactions in the Bitcoin network. Whenever a Halving occurs, the rewards for miners decrease, and many less efficient mining farms may be forced to exit the market due to declining profits. To cope with the Halving, miners typically seek more efficient mining equipment and lower-cost electricity supplies to maintain competitiveness and profitability.

Analysis of the Impact of Halving on Mining Economic Viability ###

Halving events typically lead to a significant reassessment between mining costs and market values. The profitability of mining is directly affected, as the reduction in rewards means that the same mining efforts will generate less income unless Bitcoin prices rise. This prompts mining companies to evaluate their operational efficiency, invest in more advanced technologies, or seek cost-effective energy solutions globally.

Adjustment of miners' strategies, such as equipment upgrades and changes in geographical distribution

To adapt to the challenges brought by halving, miners typically adopt various strategies, including upgrading hardware, optimizing mining algorithms, and relocating to areas with cheaper electricity costs. For example, many miners have moved from China to Central Asia, Northern Europe, and even North America to take advantage of lower energy costs and a more stable policy environment.

3. Impact of Halving on Bitcoin Supply

Halving directly affects the new supply rate of Bitcoin. In the long term, this reduction in supply may drive prices up, provided that demand remains stable. The halving event affects the economic model of Bitcoin in this way, making it more like a "digital gold".

Halving前后Bitcoin价格表现

• 2012 Halving: Bitcoin price rose from $12 to $1,300, an increase of more than 100 times, taking 357 days.
• 2016 Halving: Bitcoin price rose from $650 to $18,000, an increase of more than 27 times, taking 511 days.
• 2020 Halving: Bitcoin price rose from $9,000 to $69,000, an increase of over 7 times, taking 546 days.

Short-term volatility: After the last three Halvings, the price of Bitcoin experienced fluctuations within a month after the Halving, but subsequently saw a significant increase over the following year. This phenomenon indicates that the market needs time to digest the impact of the Halving, but will ultimately respond to the reduction in supply brought about by the Halving.

Long-term Increase: Although there may be fluctuations in the short term, historical data shows that Bitcoin Halving leads to significant price increases in the long term. This is because the halving mechanism continuously reduces the supply of Bitcoin, and since the total supply of Bitcoin is only 21 million, it makes Bitcoin a scarce asset.

Halving前后Bitcoin价格表现

• First Halving in 2012: One month after the Halving, the price of Bitcoin increased by 9%. In the following year, the price of Bitcoin skyrocketed by 8,839%.
• Second Halving in 2016: One month after the Halving, the price of Bitcoin dropped by 9%. In the following year, the price of Bitcoin surged by 285%.
• Third Halving in 2020: One month after the Halving, the price of Bitcoin increased by 6%. In the following year, the price of Bitcoin skyrocketed by 548%.

Miner Sell Pressure: Miners may sell Bitcoin after the Halving, which could put pressure on prices in the short term. However, it is important to consider that miners' sell behavior is often influenced by market demand. If market demand is strong, miners' sell behavior may be absorbed and not have a significant impact on prices.

The launch of the Bitcoin spot ETF

In January 2024, the first Bitcoin spot ETF will be listed in the United States, marking the recognition of digital assets by traditional financial markets. This will further drive institutional investors into the cryptocurrency market, increasing the liquidity and market depth of Bitcoin, thereby positively impacting its price.

4. Advantages of Bitcoin as an Investment Asset

Comparison of Bitcoin and traditional assets (such as gold and stocks)

Bitcoin is often referred to as "digital gold," possessing characteristics of non-government control and scarcity similar to gold, but showing different advantages in several aspects. First, Bitcoin's global nature and ease of trading provide advantages that transcend geographical limitations, making storage and transfer more convenient and cost-effective. Second, compared to the stock market, the Bitcoin market operates almost around the clock, offering higher liquidity and trading flexibility. Furthermore, Bitcoin's price is not directly influenced by company performance or economic policies, providing investors with a potential hedging tool; during times of increased global economic uncertainty, Bitcoin may exhibit characteristics that are not in sync with traditional markets.

Over the past year, the cumulative return rate of Bitcoin has shown significant differences compared to other traditional assets. Bitcoin experienced a period of intense growth in October 2023, with its cumulative return rate rapidly climbing in a short period, far surpassing other assets. This sharp increase highlights the potential and volatility of Bitcoin as an investment tool, while the growth of traditional assets such as stock and bond indices remained relatively stable.

The price of Bitcoin has a significant correlation with its 30-day rolling volatility. For most periods, the rise in Bitcoin's price is accompanied by an increase in volatility. At the beginning of 2024, Bitcoin's price reached a peak, during which volatility also increased significantly, indicating that large price fluctuations and increased investor uncertainty heightened market volatility. In March 2024, Bitcoin's price experienced a sharp decline, which was also reflected in the sudden rise in volatility, showing that volatility indicators are an important measure of market uncertainty and shifts in investor sentiment when prices change rapidly.

Bitcoin's market acceptance and growth potential

In recent years, the market acceptance of Bitcoin has significantly increased, with more and more financial institutions and technology companies beginning to support Bitcoin trading or accept Bitcoin as a payment method. The involvement of international payment giants has made Bitcoin more mainstream, providing ordinary investors with convenient investment and usage options. With the development of blockchain technology and the gradual improvement of the regulatory environment for digital currencies, the long-term growth potential of Bitcoin is widely optimistic. As a borderless currency, Bitcoin's potential role in the global economy is gradually expanding, and its growth potential has been recognized by many investors.

As of April 6, 2024, several well-known ETFs and listed companies hold a large amount of Bitcoin, reflecting the market's acceptance of Bitcoin and optimism about its growth potential. The Bitcoin spot ETF holdings of large asset management institutions have reached hundreds of thousands of units, with a total asset value exceeding $50 billion. This data not only shows the positive attitude of institutional investors towards Bitcoin investment but also suggests that Bitcoin, as an emerging asset class, is gaining recognition from an increasing number of participants in the traditional financial market.

At the same time, among listed companies, several hold a considerable amount of Bitcoin, totaling over 250,000, worth more than 17 billion dollars. The participation of multinational tech companies further indicates the mainstream business sector's affirmation and expectation of Bitcoin's future value.

Overall, whether in the asset management industry or among major listed companies, the large-scale holding of Bitcoin highlights the market's deep confidence in it, as well as the potential importance of Bitcoin as an investment tool and a means of value storage in global asset allocation. This trend indicates an increase in the maturity of the cryptocurrency market and a broader market acceptance in the future.

V. Future Outlook and Investment Opportunities

The diversification effect of Bitcoin investment and traditional investment portfolios

Incorporating Bitcoin into a traditional investment portfolio can provide significant diversification benefits. Due to the low correlation between Bitcoin and traditional financial assets, it offers a means of risk dispersion for the portfolio. In times of global economic instability or inflationary environments, Bitcoin has even shown characteristics of a safe-haven asset. By analyzing Bitcoin's performance under different market conditions, investors can better understand how to leverage this digital asset to optimize the risk-return ratio of their portfolios.

The low correlation characteristics between Bitcoin and traditional assets are evident. Apart from maintaining a high correlation with Ethereum, BTC generally has low correlation with mainstream assets such as the Dow Jones, S&P 500, Nasdaq, and Hang Seng Index. This low correlation demonstrates the advantage of BTC as a diversification tool in an asset portfolio, helping to disperse the systemic risks of the investment portfolio. Especially during turbulent times in traditional markets or when facing downward pressure, this characteristic of BTC may provide investors with a certain degree of protection, thereby reducing the overall volatility of the investment portfolio.

In the past decade, a comparison of the standardized cumulative returns of the traditional 60/40 investment portfolio (60% stocks, 40% bonds) with portfolios that have varying proportions of Bitcoin shows that as the proportion of Bitcoin increases, the return volatility of the portfolio also increases. During periods of rising Bitcoin prices, portfolios containing Bitcoin allocations significantly outperformed the traditional 60/40 portfolio. However, this also came with higher volatility, especially during peaks and declines in Bitcoin prices. This indicates that while incorporating Bitcoin into a portfolio may increase returns, it also increases the portfolio's risk exposure.

Bitcoin and various assets