Introduction
In the landscape of financial markets, cryptocurrency has emerged as a novel concept over the past few years and grabbed the interest of both seasonal investors and curious newcomers. This same interest fueled the crypto market in 2020, and several coins experienced significant growth.
It was the time when the top 30% of the cryptocurrency market cap saw an exponential total growth of 308% with an all-time high of $732 billion. Thus making 2020 a historic year in the financial history of cryptocurrencies.
Key Historic Events
Some of the notable factors that played a significant role in the price surge of crypto, especially Bitcoin, were the halving of Bitcoin in May 2020 and interest from big corporations and money managers. For instance, MicroStrategy shifted $425 million of its corporate treasury into Bitcoin, while Square and PayPal announced substantial investments in cryptocurrency. All the factors aligned in favor of Bitcoin, and we saw a significant increase in Bitcoin’s value by December 2020 as it crossed $20,000 for the first time in its history.
The narrative of Bitcoin being the ‘Digital Gold’ continued into early 2021 as it was valued at $64,500, driving an increase of 450% in only 6 months. However, the crypto market experienced a significant jolt in its upward trajectory when the news of a crackdown from the Chinese government came out. This news caused the value to decrease by a whopping 50% and Bitcoin came down to $38,500. Following that, Elon Musk announced that Tesla would not be accepting payments in Bitcoin anymore and the FTX scandal also reached the headlines, collectively leading to a decrease of 70% in the value of Bitcoin from November 2021 to June 2022.
In the months following the crash of the market, there was no special interest in these decentralized coins and the market was generally stagnant. However, past October 2023, the market has regained its investors’ interest, and we are experiencing a renewed appeal towards cryptocurrencies; the resilience shown by the market, Bitcoin Spot Exchange Trading Funds approval by US SEC, and Ethereum’s stability being the leading factors for this newly established interest.
Now, considering the recent surges and Bitcoin’s value crossing an all-time high, we are looking at a promising future in the crypto market. Another important milestone is the recent halving of Bitcoin on 17th April 2024, which will reduce the mining reward to 3.125 BTC as compared to the previous 6.25 BTC, which would significantly impact the future developments of the market.
What is the purpose for splitting the crypto mining rate?
The splitting of the Crypto mining rate or halving refers to the concept where the mining reward for the miners is cut in half. It is a pre-written code in the algorithm of Bitcoin’s blockchain code which occurs every four years and was programmed to regulate its total supply and control the circulation of new coins in the market.
Unlike fiat money, which is controlled by the Fed, Crypto coins are minted by miners who use super powerful computers to add new blocks to the blockchains, and as a reward they are given coins.
The splitting or halving has a twofold purpose, first – regulation and control serve as a method to keep the supply under check to mimic the scarcity dynamics akin to gold, driving up the overall value. Second, as the reward decreases, it forces the miners to adopt more efficient mining practices and introduce innovative technologies. This leads to the maturation of the network which makes it more secure and resilient to attacks. Furthermore, it also pushes the non-serious miners to exit the market.
Historical results from splitting
Bitcoin halvings have served as an important milestone in the overall crypto market ecosystem. Till now the market has seen four halvings i.e., 2012, 2016, 2020, and 2024. The 2016 and 2020 halving sheds some light on how the market generally reacts afterwards. In 2016, the price of Bitcoin fluctuated between $400 to $700 before hitting an all-time high of around $20,000 by the end of 2017.
However, after the massive adoption and increased confidence from the investors, the 2020 halving produced serious outcomes not just for Bitcoin but for all the other coins as well. As discussed, Bitcoin broke its previous record of 20,000 USD within 7 months of halving by hitting a $28,000 mark at the end of 2020. However, the surge in the value of currency did not stop there as it hit over $60,000 before the market crash of 2021-2022.
(Source: https://charts.bitbo.io/halving-progress/)
Considering the historical data, Bitcoin’s halving significantly impacts other cryptocurrencies as well. The trends from 2016 and 2020 show that Bitcoin splitting pushes the market into bull runs and even if the impact is delayed, it certainly creates ripple effects.
For instance, after the 2020 halving of Bitcoin, Ethereum also gained traction and during the same period i.e., 2021 when Bitcoin hit its peak, Ethereum was being traded at over $4,000. At the time of halving, Ethereum was at $211, suggesting approximately an 1800% increase in the valuation.
One might say that the entire growth in other coins cannot be attributed to just Bitcoin as multiple factors are at play, however, a quick study of the markets history makes it evident that an undeniable ripple effect does translate into the overall market whenever Bitcoin makes a move.
Which coin has benefited the most from splitting?
The biggest beneficiary of coin splitting is of course Bitcoin. During the first slicing in November 2012, the coin was trading at $12.20 and by the end of 2013, the value peaked at around $1,000. In the second halving of 2016, Bitcoin was trading at $640.56 initially, and it hit an ATH of nearly $20,000.
Finally in 2020, we saw the biggest climb when Bitcoin hit the value of over $60,000 in just about a year of its halving. Although a direct causation cannot be established as to which coins benefitted from the halving for Bitcoin, however, if we consider the ripple effect of 2021 year’s Bitcoin boom on other cryptocurrencies, we can list the top 5 cryptocurrency gainers as follows:
- Ecomi (OMI) +15,034.09%
- Gala (GALA) + 10,891.26%
- Axie Infinity (AXS) +10,598.52%
- Telcoin (TEL) +9597.44%
- Solana (SOL) +7998.67%
Conclusion
Now that the crypto community has seen another halving of Bitcoin, it braces for another potential impact. From the historical analysis, we understand that the halving might cause immediate volatility and uncertainty in the market, but now with a more mature outlook and institutional investors like BlackRock joining the league, the general outlook looks positive.
Many investors are expecting a bull run of the crypto market to start earlier than at the time of the previous halvings. The larger concern right now is whether the market can sustain the blows from the critics or not. The market needs to maintain a less volatile and resilient outlook to earn more investors’ confidence.
One thing that is certain with the big corporations now joining the crypto markets and looking for ways to Hedge Bitcoin is that the confidence in the market is greater than ever. With Friday’s halving, the stage is set for another chapter in the ongoing saga of cryptocurrencies, where innovation, speculation, and scarcity converge to shape the future of finance!
Article By: Hamza Bashir. An avid investor and strategic consultant with expertise in stock analysis. He has been investing, analyzing, and writing articles on the stock, cryptocurrency, real-estate, and commodities market for over 3 years.