On the 20th of April, everyone in the DeFi space joined the countdown of the final 210,000th block to mark Bitcoin halving in 2024. While this was not the loudest of occasions, its importance remains the same. Several days later, it seems this landmark occurrence did not impact investor behavior.
The surprising turn of events has people questioning if this year’s halving has the same impact as previous ones. After all, the simple principles of demand and supply should take effect. Well, this article will explain, as much as possible, what bitcoin is about. It will also suggest why the results are somewhat different.
Understanding Bitcoin Halving in 2024
Bitcoin halving is a self-regulating mechanism that reduces the mining rewards by half every time the network adds 210,000 new blocks. Set by the founders of the first cryptocurrency, this process regulates supply and prevents inflation.
Bitcoin utilizes the proof of work consensus mechanism to process transactions and add new blocks to the blockchain. Miners get rewards for solving the complex equation and processing these transfers. When Bitcoin was first launched in 2009, the reward was 50 bitcoin.
Looking at this original structure, it will not be long before the world’s first cryptocurrency flooded the DeFi market. On average, 144 blocks are added to the Bitcoin network daily. Therefore, 7200 BTC goes into the circulating supply every day and 50,400 every week.
No currency will survive (whether fiat or crypto) if 7200 units continually go into circulation daily. A good example is Zimbabwe, which suffered hyperinflation after printing more fiat notes between 2007 and 2008. The citizens became “poverty billionaires”, having so much cash that was worth almost next to nothing.
Inflation hit a record 98% and people had to resort to the trade by barter system. Things got so bad that people were using food items to pay for services like haircuts.
The founders of Bitcoin put halving in place to prevent the token from suffering from hyperinflation. Therefore, the reward miners get will reduce by half every time the network adds 210,000 new blocks. Although it is not certain how long the networks add this number of blocks, it is speculated to be every 4 years.
Since launching on the 9th of January 2009, this mechanism has reduced the mining rewards from 50 BTC. The table below is an overview of Bitcoin halving from 2009 to 2014:
- Nov. 28, 2012, to 25 bitcoins
- July 9, 2016, to 12.5 bitcoins
- May 11, 2020, to 6.25 bitcoins
- April 19, 2024, to 3.125 bitcoins
How Halving Dismisses Claims of Bitcoin Being a Hoax
One of the major criticisms of Bitcoin is that it is not real money or a proper store of value. In April 2022, Charlie Munger said at the annual shareholders meeting that he would not buy all the Bitcoin in the world for $25. When asked, he said that he does not believe in the first cryptocurrency because “it does not produce anything”.
In his words, “In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and Bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System … and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban Bitcoin in China.”
When you look at the criticism of Charlie Munger, you will understand that he is marketing Bitcoin. Looking at his point, he claims that China was smart to Ban BTC. However, Hong Kong recently made a conditional approval of Bitcoin and Ether Spot and ETF trading.
Secondly, he said that blockchain tokens undermine the US Federal Reserve. This claim is shocking, considering the US government recently increased the interest rate to “battle inflation”. Meanwhile, the country printed more than $3 trillion in 2020 alone.
Finally, Mr. Munger said that bitcoin will go to zero (it will lose its value). Surprisingly, BTC has grown in value since its launch and has not suffered from inflation like the US Dollar. Perhaps governmental institutions should learn from the Bitcoin Halving mechanism in 2024.
Possible Reasons Why Bitcoin Halving in 2024 Did Not Impact the Market
The typical buzz associated with Bitcoin halving seems to be absent in 2024. This has caused many people to question the authenticity of this occurrence as the market has been largely idle. Since the 20th of April, BTC has hovered around the $64k mark.
Isn’t this regular occurrence meant to be a major factor in shaping the market? Why the irregular turn of events this time around?
To answer this question, Bitcoin Halving in itself is not the driving factor for the price increase. Instead, it is what leads to market actions that result in the spike in BTC value. For a better understanding, consider the example below.
A man gives his dog a treat whenever he gets back home. Over time, the dog associates the man’s homecoming with the recipient of treats. Even before the man brings out the treat, the dog is already wagging its tail and salivating. Someone who does not understand the history behind their relationship would think that it’s the man’s presence causing the dog to wag and drool.
There may be times when the man forgets to buy a treat or does not have the money to afford it. On its part, the dog may feel it got excited for no candid reason, as it did not get the treat even when the man came home.
The bitcoin halving in 2024 was not reflected in the charts because of other factors. One of such is the sell pressure from miners to foot operational costs. It is also possible that whales and institutional investors are still studying the market before making a move. Some holders may also be selling for various reasons, thereby neutralizing the impact of those who are buying.
Strategies for DeFi Investors and Stakeholders
With mining rewards becoming smaller after every Bitcoin halving, people will begin to ask questions. Is crypto mining still worth the effort? Will mining firms stop operations? What will happen to Bitcoin transactions if there are no more miners? Is Bitcoin still a smart form of investment?
One fact remains certain – Bitcoin is still a smart form of investment. The Blockchain Life Event in Dubai focused a lot on entrepreneurship opportunities within Web3. One of the areas of exploration was crypto mining. Those still wondering if mining is productive should look at Celsius network.
The crypto lending firm partially recovered from bankruptcy and rolled out plans to venture into mining Bitcoin. Lenders will own the proceeds from the operations according to the value of their portfolio. That all stakeholders quickly approved the initiative proves that miners will remain and play their vital roles in DeFi.
Contrary to popular belief, Bitcoin is not the only network that requires miners. Several other cryptocurrencies utilize the proof of work consensus protocol. In this regard, some miners may switch to other tokens if the rewards fall below a certain level. More so, most firms will continue operations if the value of Bitcoin increases.
Meanwhile, mining is not the only form of DeFi investment that capitalists can profit from. Crypto trading will remain and those who can read the charts well will continue to earn money. Furthermore, individuals can also participate in yield farming to earn rewards. As long as people still use decentralized exchanges, investors will continue to generate revenue from yield farming.
Conclusion
In conclusion, the recent Bitcoin halving in 2024 reduces mining rewards to 3.125 bitcoins. This has left many in the DeFi space pondering its impact on the market. Contrary to expectations, the event did not change investor behavior or market dynamics. However, Bitcoin halving aims to regulate the token’s supply, prevent hyperinflation, and solidify Bitcoin’s store of value.
Critics like Charlie Munger have dismissed Bitcoin as a hoax, but recent developments, such as Hong Kong’s conditional approval of Bitcoin and Ether trading, challenge such assertions. Moreover, Bitcoin’s resilience amid global economic uncertainties, including inflationary pressures, highlights its potential as a hedge against traditional fiat currencies.
While there haven’t been immediate market reactions, individuals must recognize that halving events alone does not determine Bitcoin’s value. Other factors, including sell pressures from miners, institutional investor strategies, and individual holder behaviors, influence market dynamics.
Looking ahead, DeFi investors and stakeholders should evaluate the evolving industry and strategize accordingly. While Bitcoin mining rewards will become smaller over the coming years, Celsius Network’s entry into mining proves there is still life in the sector. Additionally, crypto trading and yield farming still ensure diverse avenues for profiting from the DeFi ecosystem.
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