Bitcoin’s inflation rate has plummeted to a historic low of around 1.74% following the recent Bitcoin halving. 93.3% of Bitcoin has already been mined, amounting to 19.6 million out of a possible 21 million BTC, and the scarcity factor is poised to expand demand, potentially fueling a surge in the price of the major cryptocurrency. In contrast, fiat currencies suffer from high inflation rates due to government control and economic policies. For example, inflation data shows that countries such as Argentina experienced very high inflation rates reaching 161.0% in 2023. The European Union (EU) reported that the euro zone’s annual inflation rate in December 2023 was at a more moderate level of 2.9%.
The recent halving event is expected to further reduce Bitcoin’s inflation rate, affecting scarcity and investor sentiment. The trend suggests that each halving event, which halves the reward for mining a new block, tends to increase buyer interest due to reduced supply growth.
According to a report by CoinGecko, historical data shows a consistent trend of Bitcoin prices rising significantly after each halving. Since the first halving in 2012, the price of Bitcoin has surged a whopping 8,858%. Subsequent halvings saw returns decline with increases of 294% and 540%, respectively, but the pattern of post-halving price surges is still discernible. These events not only affect Bitcoin, but also other major cryptocurrencies such as Ethereum, although they have varying impacts due to differences in their supply mechanisms.
The completion of the fourth halving has sparked speculation within the cryptocurrency community about near-term market dynamics. Bitwise recently pointed out that while the months immediately following a halving typically see a gentle decline in prices, the following year often portends an exponential rise. After the 2012 halving, Bitcoin showed a small increase of 9% in the month following the halving, but surged a whopping 8,839% the following year. A similar pattern was observed after the 2016 and 2020 halvings, with Bitcoin prices seeing significant surges in the years following each event.
Bitcoin market capitalization fluctuations following the halving event provide valuable insight into consumer behavior during this important period. The market capitalization, which was pegged at $123.3 million during the first halving, soared to $947.4 million shortly thereafter.
A similar pattern was observed in subsequent halvings, reflecting the tendency of Bitcoin holders to speculate on halving events and hold on to their assets in anticipation of a rise in value. Analysis of the period before and after the halving suggests a strong inclination to hold Bitcoin as the halving intensifies due to future supply constraints.
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