As one of the most important narratives in the cryptocurrency industry, “Bitcoin halving” has always been a remedy to boost market confidence. With the bull market seemingly within reach, will this halving cycle follow the same rhythm as before?
Summary:
Accompanied by the ever-changing “atypical bear market,” the “halving” narrative in the crypto world has arrived once again. On April 20, 2024, the block reward will be reduced from 6.25 BTC to 3.125 BTC.
In the crypto industry, each halving is a grand event, especially the previous two halving cycles of Bitcoin, which saw astonishing gains of tens of times (although short-term declines occurred after these two halvings, they eventually entered a long-term upward trend after adjustments were made).
However, since the third halving in 2020, the industry has seen significant improvements in the number of industry practitioners, market attention, and supporting infrastructure. Bitcoin is no longer confined to a niche product in the geek circle, but has started to interact with more external factors.
To summarize briefly:
Before the first two halvings (2012 and 2016), geeks in the industry were more concerned about the possibility of Bitcoin as electronic cash.
During the third halving (2020), the focus shifted to Bitcoin’s attributes as a payment tool, which sparked a series of debates.
In the fourth halving period (2024), with the approval of the Bitcoin spot ETF, Bitcoin has become an alternative asset, and the focus has shifted to the traditional institutions and capital layout.
Compared to the first two halvings, the third halving of Bitcoin created unprecedented excitement. At the same time, the overall global political and economic environment during the third halving also influenced its performance. Due to macro factors, Bitcoin experienced a sharp decline from March 12 to March 13, 2020, starting at $7,600 and dropping to $5,500 before eventually bottoming out at $3,600. The market value evaporated by $55 billion, and more than 20 billion RMB was liquidated, precisely achieving the “halving of price.”
However, after the halving in May, the DeFi Summer ushered in a new bull market cycle, and Bitcoin soared to $60,000, nearly 20 times the lowest point before the halving.
In general, according to the rules of historical halving cycles, from a traditional perspective, the price of Bitcoin during the halving should return to half of the previous bull market price. Just last month, the price of Bitcoin returned to the previous bull market price, surpassing $60,000 and even breaking through $71,000.
So, will the halving trigger a new bull market cycle? Can it achieve a more than 10-fold increase in the current market volume?
However, at the same time, with Bitcoin having undergone three halvings, the block reward has been reduced to 6.25 BTC and the total amount mined has exceeded 19 million. Many situations and issues need to be reconsidered from a new perspective.
Especially in this halving cycle, there are some new variables worth noting compared to previous halvings.
According to the rules of Bitcoin halving, the block reward started at 50 BTC and is halved every four years. It has already been halved three times to 6.25 BTC. The next halving will occur in 2024, and this will continue until 2140 when Bitcoin will no longer have block rewards. However, transaction fees will continue to exist, so with each halving, the block reward will gradually decrease and approach zero, making the income of block producers solely reliant on transaction fees.
Since 2023, the prosperity of Bitcoin’s ecosystem, especially BRC20, has triggered a new wave of “BitcoinFi,” and the activity of internal Bitcoin ecosystem transactions has reached a new peak, thereby increasing transaction fee revenue.
Among them, on December 17, 2023, the mining fee income of BTC reached a new high in nearly five years, reaching 696.95 BTC (approximately $19.08 million), accounting for over 40% of the miners’ total income that day.
A. The rise of “inscription fever”
At the end of 2023, the “inscription fever” was ignited. On the basis of existing Bitcoin improvements such as SegWit, the Ordinals protocol and BRC20 protocol successfully opened the door to Bitcoin’s ecosystem, marking the rise of Bitcoin’s ecosystem. The specifics are as follows:
“What is the ‘inscription fever’ in Bitcoin all about?” The core developers considered it a vulnerability that could lead to a reset. But due to the popularity of inscriptions, attention shifted from Ethereum to Bitcoin, especially among institutions, which began to invest in Bitcoin’s ecosystem infrastructure, indicating the arrival of “Bitcoin Summer.”
B. Bitcoin Layer 2
Recently, BEVM, BOB, and other Bitcoin Layer 2 solutions have secured financing ranging from millions to tens of millions. The launch of Nervos’ RGB++ and Seal’s minting has also fueled the popularity of Bitcoin Layer 2 solutions built on CKB (CKB is the first layer network of Nervos Network responsible for storing all transaction data and smart contracts). Currently, there are various Bitcoin Layer 2 solutions on the market, which can be divided into four categories: Bitcoin sidechains, UTXO + client validation, Roulp, and Taproot Consensus.
C. Rune fever
Just a few days before the Bitcoin halving, activities related to ordinal and rune protocols in the Bitcoin ecosystem were in full swing.
Ordinal was launched in January 2023 by @rodarmor. It increased the amount of data that can be stored on the blockchain, thus promoting inscriptions. This has sparked a series of innovations using the system, such as BRC-20 and runes. The table below shows the difference between them.
With the launch of the rune protocol and the Bitcoin halving, the transaction volume of ordinals has exponentially increased. It is worth noting that in the past month, Bitcoin’s transaction volume has almost caught up with Ethereum, with OKX and MagicEden being the main markets.
The most well-known NFT collections on the ordinal system include NodeMonkes, BitcoinPuppets, and QuantumCatsXYZ. In addition to having strong community support, the holders of these collections have also received various airdrops, some of which have significant value, creating a wealth effect in the ordinal/rune ecosystem. Similar to WIF, this has created a loyal community that helps to drive the development of the story more intensely. Therefore, the market’s excitement for the rune protocol is currently high.
D. Bitcoin spot ETF
At 4 am on January 11, 2024 (Beijing time), the U.S. Securities and Exchange Commission (SEC) simultaneously approved 11 Bitcoin spot ETFs.
The significance of Bitcoin spot ETFs lies in two aspects:
First, it increases accessibility and popularity. As a regulated financial product, Bitcoin ETF provides opportunities for a wider range of investors to access Bitcoin.
Second, it obtains regulatory approval and enhances market acceptance, which helps them conduct business in the cryptocurrency industry.
How does the approval of Bitcoin spot ETFs affect the Bitcoin ecosystem?
The approval of spot ETFs undoubtedly gives a “confidence boost” to the entire cryptocurrency industry, including the Bitcoin ecosystem. Bitcoin assets may become more stable in the future, with reduced volatility.
In simple terms, during periods of high volatility and bear market crashes, the development of ecosystem projects often faces obstacles, and entrepreneurs and users lack confidence. This leads to a decrease in financing amounts and talent loss.
As a native asset of the Bitcoin ecosystem, a steadily rising Bitcoin price is beneficial to ecosystem development, avoiding the impact of extreme market conditions.
In summary, the approval of spot ETFs allows the Bitcoin ecosystem to develop with more confidence and gain more recognition.
In conclusion, looking at the various events that have affected the price of Bitcoin in the crypto market, such as the continuous development of the Bitcoin ecosystem and the approval of spot ETFs, is this halving event positive or negative? Will it bring about a larger bull market? Blockchain has made the following predictions:
BTC/CNY hits a new historical high of 450,000 CNY, will Bitcoin crash or enter a bull market after the halving?
With less than 24 hours until the Bitcoin halving, this will likely be the first (or second) time that the majority of practitioners and investors in the industry have witnessed and experienced this “grand event” of the Bitcoin halving. How do you think the halving and the current cycle of Bitcoin will unfold? Feel free to comment and exchange ideas.