As the much-anticipated Bitcoin halving, scheduled for April 20, 2024, approaches, the cryptocurrency community is abuzz with speculation about its potential impact on the market.
Halvings, which are pre-programmed events that halve the rate at which new Bitcoins are created, have historically been seen as a bullish catalyst for long-term holders.
But despite the excitement surrounding the event, some analysts are warning against expecting significant volatility immediately after the halving.
TLDR
- Bitcoin’s impending rewards halving, although monumental, is unlikely to cause a significant volatility explosion, according to Amberdata’s Greg Magadini.
- Although the implied volatility in options is higher just before the halving, suggesting greater price volatility, Magadini believes it is not worth paying the volatility premium for a more predictable outcome.
- The impact of Bitcoin’s reward halvings on the native cryptocurrency and miners is well-documented, with cryptocurrencies historically seeing massive gains in the 12 to 18 months following halvings.
- Current mining costs using the Antminer S19 XP will increase from $40,000 to $80,000 after the halving, and the BTC price will need to rise above $80,000 after the halving for miners to remain profitable.
- Historically, Bitcoin has experienced significant price increases following each halving, but has also seen significant declines within a year following a halving.
Greg Magadini, director of derivatives at Amberdata, believes the Bitcoin halving is unlikely to cause a significant burst of volatility.
In a recent newsletter, Magadini said:
“From a qualitative perspective, I continue to believe that paying a volatility premium for a highly predictable outcome (BTC halving) is not worth the volatility event premium.”
He argues that the impact of Bitcoin’s reward halving on the native cryptocurrency and miners has been well-documented over the years, leaving little room for surprises.
Despite Magadini’s skepticism, option implied volatility hit higher levels ahead of the halving, suggesting greater price volatility during the halving period.
However, he points out that recent major cryptocurrency events such as Ethereum’s Dencun upgrade, Shanghai upgrade, and BTC spot listing have disappointed buyers of implied volatility when realized volatility failed to materialize by a large margin.
Although halving does not result in immediate volatility, its impact on mining costs and profitability is significant. According to data from CryptoQuant CEO Joo Ki-young, the current cost of mining using the Antminer S19 XP will increase from $40,000 to $80,000 after the halving.
#Bitcoin Mining costs will double by the end of the month following the halving, rising from $40,000 to $80,000 for the S19 XP commonly used by U.S. miners.
By chart @clayop pic.twitter.com/iElf2i7Kok
— Kiyoung Ki (@ki_young_ju) April 8, 2024
For miners to remain profitable and continue operating, the BTC price will need to rise above $80,000 after the halving. Historically, BTC price has risen multiple times after each halving. Prices have increased 9,000% since the 2012 halving, 4,200% since the 2016 halving, and 683% since the 2020 halving.
However, while halvings are generally considered bullish for Bitcoin, historical data shows that BTC often experiences severe crashes within a year of each halving event.
These crashes have caused Bitcoin prices to fall by more than 80% on average. The first halving in 2012 led to an 85% decline in 2013, the second halving in 2016 led to an 84% decline in 2018, and the third halving in 2020 was followed by a 77% correction in 2022.
Profit taking by investors and the phenomenon of ‘mining capitulation’ are believed to be one of the reasons for this halving collapse. Despite these periodic corrections, Bitcoin has consistently demonstrated its resilience and ability to recover from significant downturns.
Michael Saylor, MicroStrategy Founder and Chairman, said:
“If you invest in Bitcoin, the short term is 4 years and the medium term is 10 years. The correct time horizon is eternal.”
With the fourth Bitcoin halving approaching and the price recently regaining $71,000, investors and enthusiasts are eagerly anticipating the potential impact.
History suggests that a post-halving correction may occur next year, but today’s situation is different from previous events that affected Bitcoin as an asset. With clearer regulations, significant institutional investment, and a network stronger than ever, the cryptocurrency community remains hopeful about Bitcoin’s long-term prospects.