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In the past, Bitcoin has followed a few predictable patterns when it has split in half. This argument seems to be true for mid-halving events, like the one taking place this month.
The mid-halving event has been bad for Bitcoin in the past, and it may happen again this time. However, it’s important to remember that the short-term price action of Bitcoin will still be hard to figure out.
This article will remind our readers about the halving phenomenon, its implications, and what we can expect from the market.
Bitcoin Halving: Definition
A Bitcoin halving occurs when the system halves the rewards for mining Bitcoin after each set of 210,000 blocks mining. By doing so, a halving restricts the new $BTC supply, which might result in price increases if demand stays strong.
In other words, this is Bitcoin’s method of simulating inflation until all Bitcoin is out there on the market. The most recent halving happened on May 11, 2020, and the next should occur in May 2024.
Bitcoin must follow this rule to decrease the network’s production of new coins. It restricts supply to maintain Bitcoin’s scarcity while averting excessive price inflation.
A Look Into Past Performance
Numerous trading platforms have the legal requirement to include a brief, essential disclaimer on their website. “Past success does not guarantee future revenues” is an excellent way to convey the concept.
Today, however, we find it worthwhile to investigate how Bitcoin performed during mid-halving occurrences.
In each of the previous two cycles, the third year saw unfavorable market movements for Bitcoin. Its price fell by nearly 50% in the third year of the 2012-2016 cycle. Similarly, we saw a 40% decrease in the third year of the 2016-2020 phase.
Given that we have reached this cycle’s halfway point, the third year would correspond to the next 12 months.
Bad News for Bitcoin?
Before you become concerned about another 40% decline, consider that Bitcoin’s volatility has decreased over time. Each passing cycle led to an increase in market size with the entrance of institutional investors.
According to several observers online, $BTC is approaching a more mature phase of its life. The prevalent view is that Bitcoin is on the verge of abandoning the “rule” of the four-year cycle. If this is true, comparing the present market to historical occurrences may be pointless.
After two complete halving cycles, there is sufficient historical data for people to see clear patterns in Bitcoin’s price. People’s simple awareness of them may prevent them from occurring again.
At the same time, we may be witnessing what economists refer to as a Bitcoin “self-fulfilling prophecy.” If investors feel the price of $BTC will collapse, they will sell, and this pressure will prove them correct.
The fact that we have many institutional investors in the Bitcoin market may alter the landscape. Because the amount of $BTC in circulation increases, whales are less likely to influence the prices. These are all crucial variables to consider while assessing the issue.
The Long-Term Trend
Relying too much on prior success is a classic beginner error in the financial world. Simultaneously, we may add failing to recognize the long-term trend of an asset’s price to the list of mistakes.
We should not forget that numerous experts speculate on a $100,000 price target for 2022. Since Bitcoin’s price surpassed $10,000, enthusiasts and professionals have anticipated this occurrence.
It would be interesting to see how a substantial decline in Bitcoin’s prices may affect this discussion. Analysts have already been wrong in the past, but $BTC has, so far, hit most of the significant milestones the market expected.
What Can We Expect from This Bitcoin Event?
History teaches us a lot about Bitcoin, and depending on which side you study, you may reach wrong conclusions. As previously said, we can quickly develop an optimistic or pessimistic narrative regarding Bitcoin’s future.
Once again, the market will write history, and experts will need to pay attention. Bitcoin is still a relatively new financial instrument, and there is likely still a lot to learn.