Just now! Bitcoin completed its historic fourth halving!

A little after 8 am on April 20, as the Bitcoin network reached the 840,000th block, Bitcoin completed its fourth halving. Before this halving, Bitcoin miners could get 6.25 Bitcoins for each successful block; after the halving, this number dropped to 3.125.

As the pioneer of the crypto industry, every halving of Bitcoin has attracted the attention of global investors and market analysts. Bitcoin halving is a core mechanism designed to control its supply by reducing mining rewards to ensure the scarcity and value of Bitcoin. The process occurs automatically every four years, halving the number of newly generated Bitcoins each time until the total number reaches 21 million. This mechanism not only reduces the speed of new Bitcoin issuance, but also effectively curbs inflation.

Since the birth of Bitcoin in 2009, mining rewards have been reduced from 50 BTC per block to 3.125 BTC, and have undergone four halvings. Each halving has significantly increased the market value of Bitcoin, as the reduced supply has pushed up the price while demand remains unchanged. The next halving is expected to be in February 2028, when the block height will reach 1,050,000. This time depends on the actual mining speed of the block, although the mining algorithm targets a block time of 10 minutes, the actual time may fluctuate.

What is the difference between this halving and the past?

Recalling the last round of halving crypto bull market, it was a bull market with the release of US dollars.

In early 2020, the COVID-19 pandemic hit, the US economy suddenly declined, and the unemployment rate soared. Against this backdrop, the Federal Reserve launched a combination of monetary policy tools called "zero interest rate + quantitative easing", which means that the lower limit of the federal funds rate will be drastically reduced twice in a row, from 1.5% to zero, and announcing unlimited purchases of Treasury bonds and MBS (mortgage-backed securities). This is the second time that the Federal Reserve has started a large-scale monetary easing process after the 2008 "subprime mortgage crisis".

As a result of that monetary "flooding", the size of the Federal Reserve's balance sheet expanded by 1.1 times in 26 months, from $4.2 trillion at the end of January 2020 to $9 trillion at the end of March 2022, an increase of $4.8 trillion. The absolute scale of "flooding" far exceeds that of the 2008 subprime credit crisis. More importantly, after these two monetary "floodings", the trend of prices, an important macroeconomic indicator, showed significant differences. In the same year, the Russia-Ukraine conflict triggered a rapid rise in global energy and food prices, which also contributed to the situation.

With more hot money in the US dollar, it will inevitably flow to various markets around the world, including Bitcoin.

In 2020, Bitcoin rose by more than 300%, and in December alone it rose by nearly 50%. Since then, Bitcoin has soared by more than 120% since the beginning of spring 2021, hitting a then-high record of nearly $65,000 in mid-April, starting a roller coaster trend.

The US cryptocurrency trading platform Coinbase went public in April, with a valuation of $86 billion on the first day of listing, making it the largest cryptocurrency company to go public to date. In May, the price of Bitcoin fell by 35%, and then soared to a record high of $69,000 in November.

The rise of Bitcoin ecology

In addition, we can see that compared with the past, more trading scenarios have appeared on Bitcoin since last year, and the Bitcoin ecosystem has provided new profit opportunities for miners.

Since the beginning of 2023, the NFT protocol "Ordinals" created by software engineer Casey Rodarmor has been officially launched on the Bitcoin mainnet, and the Bitcoin ecosystem has been revitalized. The hot Bitcoin ecology has increased the income of miners a lot, so there have been rumors that miners are the main driving force of the Bitcoin ecology, and many people half-jokingly call "Bitcoin ecology a conspiracy of miners." On this issue, Jademont (Dashan), CEO of Waterdrop Capital, expressed his views to BlockBeats: "This is not a conspiracy at all, but a conspiracy of miners."

In Dashan's view, as an important participant in the Bitcoin ecology, miners are very motivated to improve the Bitcoin ecology or increase profit income by building the Bitcoin ecology. It’s just that in the past, Bitcoin’s infrastructure was not enough to support doing anything other than mining and transferring money. But the Taproot upgrade in 2021 gave Bitcoin a better scalability and variability enhancement. Technically, it makes it possible for Bitcoin to make some innovations and applications. The birth of Ordinals and the emergence of new technologies such as PBST and MAST all benefited from that Taproot upgrade. This also gave rise to the development of various sidechains and second-layer (L2) solutions, such as RGB, Lightning Network, and BITVM, which are developments that miners want to see and actively promote.

Dashan also mentioned some specific examples to illustrate the active participation of miners: "The US mining giant Marathon Digital launched its own Bitcoin Layer 2 network, which clearly demonstrated the contribution of miners to the development of the ecosystem. In addition, several EVM-compatible Layer 2 projects we invested in, such as Merlin, BEVM, and BSquared, have received strong support from miners, helping these projects' TVL to grow rapidly. This is not only because miners have a large amount of idle Bitcoin, but also because they are very willing to build an infrastructure in the Bitcoin ecosystem that is comparable to Ethereum Layer 2."

According to the on-chain data, although the overall crypto market is not doing well, the transaction volume on Bitcoin has been extremely active since April, and the gas fee has been on an upward trend. This also means that after two low tides, the third wave of Bitcoin ecology is coming.

In the third wave of Bitcoin ecology, the community has not only begun to realize that the Bitcoin ecosystem still lacks richer and more advanced infrastructure. In order to meet the growing demand, the Bitcoin ecology has begun to move towards a more "virtual to real" development path, including Bitcoin Layer 2, Bitcoin DeFi, and Bitcoin cross-chain technology, which together constitute the BTCFi ecosystem.

On the other hand, the Runes protocol is also the main force of this wave. As the "singularity" of the "Big Bang" of the Bitcoin ecology, Casey's influence is unmatched in the entire Bitcoin ecology. As a brother protocol of the Ordinals NFT protocol, the Runes protocol used to issue coins has a strong consensus. The Runes protocol itself carries a strong consensus foundation. As this consensus continues to strengthen, the increase in asset value has become a market consensus.

With the development of more Layer 2 solutions and DeFi application ecosystems in the Bitcoin network, miners can earn transaction fee income by participating in transaction verification and network maintenance on these platforms. This not only opens up a new source of income for miners, but also promotes further optimization and functional expansion of the Bitcoin network.

The West Dominates This Round of Markets

In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing of Bitcoin spot ETFs, which had a profound impact on this round of crypto bull market and Bitcoin's price trend after halving. In the past, the complexity of Bitcoin and the lack of support from the traditional financial industry have deterred many investors, especially retirees. Now, with the entry of heavyweight financial institutions such as BlackRock and Fidelity Investments, Bitcoin is gradually gaining recognition in the mainstream market.

In addition, Bitcoin ETF not only provides an investment channel that follows traditional financial norms, greatly simplifies the process of investing in Bitcoin, but also provides a safe investment method that complies with regulations. It enables large investors such as hedge funds, pension funds, family offices, and sovereign wealth funds to invest in Bitcoin with greater confidence, provided that they comply with their own investment policies and risk management requirements. Although the listing of ETFs will not immediately make all investors embrace Bitcoin, it does significantly reduce the difficulty of entering the market.

The impact of Bitcoin ETFs has begun to emerge, especially against the backdrop of surging demand. The Bitcoin ETF issued by BlackRock attracted $10 billion in funds in the first seven weeks alone, setting a record high for financial product issuance. This achievement was achieved more than two years after the first gold ETF was listed in 2004. At present, all Bitcoin investment products in the world control more than 1 million Bitcoins, accounting for 5% of the circulating supply.

From another perspective, the player group of Bitcoin is growing. Canada, the United States and Hong Kong have successively approved Bitcoin ETFs. Although the Hong Kong ETF did not directly drive up the price of Bitcoin, it reflects that Bitcoin has been officially regarded as an investment product. As a result, more and more people are starting to participate in it by buying Bitcoin or investing in Bitcoin-related mining machines and other ecosystems. In general, Bitcoin's consensus is increasing, the number of participants is increasing, and the opportunities and funds are expanding.

This also means that the demand for Bitcoin ETFs may far exceed the existing supply. In the first few months, the daily purchase volume of the ETF was once 10-12 times the daily new mining output. If this strong demand continues, the market impact of the Bitcoin ETF may be greater than the significance of the halving.

The East has "stepped down" from the altar of mining

BlockBeats communicated with Wang Wenguang, head of the mining business of BitDeer Group, and found that the difference between this halving and the last one in 2020 is that the structure of the mining industry has changed dramatically.

"At the time of the halving in 2020, China still controlled more than 60% of the world's computing power. Now, China is no longer involved in this industry."

Wang Wenguang reviewed the market reaction after the last halving: the price of coins rose, the market activity increased greatly, and the price of mining machines also rose accordingly. Miners actively entered the market, and the mining craze was unparalleled. The market turmoil and emotional fluctuations at that time were fully demonstrated under the impetus of halving. However, the situation after the halving this time is completely different. The lack of support from Chinese mines makes it seem that the mining machines have nowhere to go.

He went on to explain: "During previous halvings, many old mining machines were relocated from Inner Mongolia and Xinjiang to Sichuan to take advantage of local hydropower resources. This periodic migration and equipment renewal was once the norm in the industry. But in this halving, we are facing an unprecedented situation - both new and old machines are difficult to find a suitable place to settle, forcing the entire industry to carry out more extensive equipment updates."

Former mining farm in Sichuan, source: Caixin

In the early days of Bitcoin mining, miners behaved much like traders in the stock market: when the market was bullish, they would rush to buy mining machines, and when market sentiment was low, they might stop using their equipment. Many mining farms chose to withdraw during the market downturn, and some even felt extremely frustrated and started selling their assets at a low price. However, with the development of the mining industry, most miners are still mining even in a bear market, but they may have suspended their original plans to expand their factories. But BitDeer has been investing in this industry, and has never stopped building mining factories, whether in a bull market or a bear market.

Regarding the current miner market, Wang Wenguang added: "Now, I hardly see new miners entering the market, especially in China. Mining now almost needs to go overseas, which is too high a threshold for domestic miners."

In Dashan's view, the change in the mentality of miners in the Bitcoin mining industry in recent years has been particularly significant, especially since the implementation of the mining ban in China in 2021. Before the mining ban in 2021, miners were in a very comfortable state, lying down and earning Bitcoin every day. But after 2021, miners are basically in two states, either lying down completely and quitting the industry, or they can no longer lie down and are forced to go overseas for various tossings.

"The final pattern is that small and medium-sized miners are basically eliminated, and many have changed from miners to hoarders and buyers of cloud computing power. Now only relatively top players can continue to survive in the mining industry by relying on scale advantages." Dashan told BlockBeats.

Therefore, in this context, Dashan does not recommend small miners or small-scale mining projects to enter the market now unless there is a clear advantage in energy. "Because mining is essentially an energy game, small players have no advantage in energy. If you are optimistic about the future prospects of Bitcoin, buying Bitcoin directly or adding very low leverage is actually similar to mining, but don't add high leverage."

How much impact does halving have on prices?

Bitcoin halving not only has a significant impact on miners, their cost of obtaining Bitcoin increases. At the same time, halving is also seen as a catalyst for the growth of Bitcoin's investment value. Looking back at Bitcoin's previous halvings, we can find that Bitcoin prices have risen sharply in the six months after halving.

The first halving (November 28, 2012): At the time of the first halving in 2012, the market price of Bitcoin was about $12. This event attracted market attention, and in the following six months, the price of Bitcoin increased nearly tenfold to around $130. This significant increase reflects the strong impact of the halving on market psychology and investor behavior.

Second halving (July 9, 2016): By the second halving in 2016, the price of Bitcoin had stabilized at around $660. Within six months after the halving, the price steadily rose to $900. During this period, the maturity and market acceptance of Bitcoin have significantly improved.

Third halving (May 11, 2020): The third halving occurred in 2020, when the price of Bitcoin was $8,600. With the changes in the global economic environment and wider market acceptance, the price of Bitcoin doubled in the next six months, breaking through $15,700.

Image source: TradingView.com

Recently, the global crypto market has been affected by many factors, especially the interference of war factors, resulting in abnormally weak market performance. In this context, the price fluctuation of Bitcoin has become a hot topic for investors and traders. Top traders and so-called "big leaders" hold wide disagreements on the future market trend, and their predictions are full of uncertainty. Related reading: " Long or short? See what the "big leaders" say ".

But in this chaos, how do miners view the future of Bitcoin? According to Wang Wenguang's observations and experience in mining for many years, "The current bull market is far from reaching its peak. When the price of Bitcoin falls, many investors follow the trend emotionally like sheep, mistakenly equating price fluctuations with the overall trend of the market."

In Wang Wenguang's view, the current situation is obviously not a real bull market. He went on to explain: "A true bull market is a period when everyone in the industry is making money. Whether it is a mining machine manufacturer, a miner or a trader, everyone should profit in a bull market. Mining machine manufacturers are now selling machines almost at cost price, and mainstream mining equipment has not yet been updated. The proportion of electricity costs has reached more than 60% after the halving, which is obviously not a sign of a bull market. A true bull market should be a period when mining machines have reasonable profits and the proportion of electricity costs for miners can be reduced to 10% to 20%."

Regarding the long-term prediction of Bitcoin prices, Wang Wenguang is cautious and optimistic: "I think there is a great possibility that Bitcoin will reach $100,000, although this is only a speculation based on the analysis of the past and present electricity cost ratios. If we were to predict the time frame in which Bitcoin prices may reach, I would estimate between the end of this year and the first half of next year. Of course, this is still just a speculation based on historical data, and the actual market trend may be different."

In addition, as the co-founder of F2Pool and an OG in crypto, Shenyu once assessed in May last year that it was in the "early stage of the bull market" and the absolute bottom of the bear market had passed. He believed that the cryptocurrency industry was in a state of finding new narrative logic and development.

Now, nearly a year later, Shenyu said in a recent interview, "From the current stage, this cycle is likely to be in the middle of the bull market. The market has begun to pick up and has found a new narrative logic, but it is not yet in a very high leverage and FOMO state."

However, Shenyu also reminded readers that since the market is a dynamic, multi-party game complex system, relying solely on a single indicator or historical data to predict the market top is often not suitable for the current situation. He suggested that the best practice is to continue to observe market developments and rebalance and reallocate assets when a certain stage is reached. This approach can help keep a stable mentality when the market falls rapidly or enters a bear market, and may increase their absolute rate of return.

Related reading: " Interview with Shenyu: There may be no "copycat season" in this round of bull market, pay attention to the development of modular blockchain "

Similarly, although Bitcoin has been dragged down by the factors of war and the impact of the correction of US stocks in the short term, Dashan Bitcoin price trend is also very optimistic and firmly bullish. "We think that there is a very rare correction before the halving, which is very healthy for the entire Bitcoin trend. It is just around the corner to break through the previous high again, because the fundamentals have not deteriorated, and are even getting better."

As for the specific price forecast, Dashan expressed great confidence: "There will be no problem with the previous high of more than 70,000. The key point is around 100,000. 100,000 is a psychological threshold, and many people will deliver chips around this 100,000. After the ETF was passed, the trading volume of Bitcoin did not increase significantly, but we believe that when it approaches 100,000 US dollars, the trading volume will increase. At this psychological threshold, many old leeks and long-term holders will sell. This is exactly the best time for traditional investors to enter the market, because they can eat a lot of goods near this area without pulling the market."

According to Dashan's prediction, 100,000 US dollars for Bitcoin may be the real starting point of this bull market. As for whether the price can rise further to 150,000 or 200,000 US dollars, it is difficult to say accurately, but the possibility of reaching 150,000 US dollars is very high, and 200,000 US dollars is not impossible.

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.