Bitcoin Halving Event Impacts On Volatility and Cycles

Bitcoin’s volatility is a strong characteristic tied to the digital asset. This analytical report will focus on the significant price swings and increased volatility observed in the months leading up to the Bitcoin halving events in 2016 and 2020. Highlighting the trends, factors, and to reassure that the volatility we are currently experiencing is both normal and healthy.

Bitcoin has a strong price history that can give us a lot of insight on the significance of the Bitcoin halving. For those who are unaware Bitcoin is gearing up for its next halving event due around the 21st of April. The Bitcoin halving is an event that happens roughly every 4 years, where the rewards that bitcoin miners receive for verifying transactions on the blockchain is cut in half. This is a significant part of Bitcoins model as it means the newly minted tokens entering circulation becomes less and less until we reach the finite supply of 21 million tokens.

The halving events have historically been associated with increased speculative interest, driving price movements in the months leading up to the event. This interest is fueled by the expectation of reduced supply and potential price appreciation, leading to a new cycle of increased demand.

In 2016 we saw this exact thing happen. 2 months leading up to the Bitcoin halving event in 2016 Bitcoin experienced extreme volatility with prices increasing by over 70% with corrections of 30%. On July the 9 2016, Bitcoin rewards halved, and following this halving Bitcoins price pumped massively.

2016 Bitcoin Halving

  • Now we zoom out to the peak of the cycle following the halving

In the bigger picture we see the insignificance of the pull backs Bitcoin experienced and how these actually presented themselves as great buy opportunities. Bitcoin rose by over 3200% from the Bitcoin Halving date on July 9 2016 to the peak of the cycle on December 12 2017.

In 2020, we saw this pattern play out again. There were 3 months of high volatility leading up to the Bitcoin halving event in 2020. The prices increased 48% from the start of 2020 to $10,500 on February 13 only 44 days later. Due to the Covid 19 pandemic, the retracement we experienced in 2020 before the Halving was much more severe.

Bitcoin 2020 Halving

  • Again we zoom out to the peak of the cycle following the halving

This was a temporary retracement that was another great buying opportunity as we saw the price start pumping higher after the 2020 Bitcoin halving event. The peak of the cycle on November 11 2022 from the bottom of this retracement on March 13 (prior to the halving) marks a 1800% gain. Simply buying on the day of the halving and holding to November 11 2022 equates to a gain of 780%.

Bitcoin’s relatively small market size in 2016 and 2020 compared to traditional assets like stocks or bonds, made it susceptible to sharp price fluctuations due to shifts in demand. This is especially true in the lead-up to these halving events, where anticipation and speculation drove significant volatility. Now Bitcoin’s market size is much larger, and big institutional players are getting their exposure, so even though Bitcoin seems volatile, we are yet to see the same retracements we saw in the previous cycles prior to the halving. Much of this is also linked to the approval of Bitcoin Spot ETFs that began trading on January 11 this year, and consequently this historical news began the next surge of Bitcoin.

Bitcoin 2024 Halving – Where we are today

As history does not always repeat, we can not guarantee that Bitcoin will do the same thing it did in previous cycles, however we are confident that with new institutional giants on board, Bitcoin has much growth potential.

A few volatility trends we are currently experiencing and expect to continue include:

FOMO cycle:

Media coverage, celebrity endorsements, and institutional interest can all contribute to FOMO (fear of missing out) and FUD (fear, uncertainty, doubt) cycles, further fueling price volatility. These cycles can be particularly pronounced in the lead-up to halving events, as investors and traders attempt to position themselves for potential price increases. Hence we see a lot of volume both buyers and sellers who are constantly adjusting their positions before the cycle begins.

Supply and Demand Dynamics:

The halving events directly impact the supply of new Bitcoin entering the market, reducing the rate of new issuance and increasing the scarcity of the digital asset. This can lead to increased demand and, consequently, price volatility as market participants adjust to the new supply dynamics

In conclusion, the analysis of Bitcoin’s volatility around its halving events in 2016 and 2020 highlights a pattern of pre-halving price swings and post-halving gains, driven by speculative interest and the anticipation of reduced supply. These events have not only demonstrated Bitcoins resilience and ability to attract investment but also shows strategic buying opportunities. With the market’s evolution, including the entrance of institutional investors and the introduction of products like Bitcoin Spot ETFs, the landscape around the 2024 halving may exhibit moderated volatility yet continue to offer significant growth potential post Bitcoin halving.