The next halving is expected in April 2024, so it’s time to learn more and prepare for the upcoming event.
What is halving?
It is an embedded mechanism in the Bitcoin protocol that reduces the miners’ reward for a mined block by half. Thus, halving gradually slows down emission, that is, the issuance of new coins.
Halving is a deflationary mechanism: limiting supply with growing or at least sustained demand ensures the rise in the cryptocurrency’s value. In this article, we will look at the key stages of halving.
BTC halving stages
If you are investing in the crypto market, understanding each stage will not only help you preserve capital but also make your investments more effective. Based on historical data, there are five main stages of halving.
Stage 1. Pre-halving period
Every rise is followed by a fall — this is the law of the market cycle. After each halving, the influx of new coins into the market sharply decreases. As a result, with the same demand, the cryptocurrency’s value rises.
However, after the excitement, demand eventually drops, and consequently, the cryptocurrency price collapses. The decline can last for months — this period is known as the ‘crypto winter,’ and it usually occurs long before the next halving. For example, the previous halving occurred in May 2020, and the bear market began only in December 2021.
Stage 2. Rally before halving
A local bull run starts many months before the halving. Experienced investors buy assets even before the media hype begins, and sell on encouraging news.
Any hype around cryptocurrency attracts new money to the market, but after the general obsession with growth, investing becomes too risky.
Stage 3. Pullback to halving
Just before halving itself, the cryptocurrency price may collapse. This is because investors doubt the role of halving as a catalyst for price growth.
Moreover, the uncertainty of miners adds to the confusion, as halving reduces the profitability of Bitcoin mining and can result in losses for companies specializing in mining or selling equipment.
Stage 4. Re-accumulation
A pullback is followed by a period of accumulation when investors get tired of a prolonged correction or flat — price movement in a narrow range. Bitcoin holders do not rush to sell or buy new coins, since the direction of the future trend is unknown.
This period usually occurs immediately after halving and lasts for several months. Investor sentiment at this stage is often neutral or negative.
Stage 5. Parabolic upward trend
A real bull run begins a few months after halving when the price of Bitcoin starts to rise parabolically. A bull run is also called an upward trend or uptrend.
Historically, after each halving, the price of Bitcoin reaches a new all-time high, and then the cycle repeats itself.