In-depth Analysis of Bitcoin Halving: A Comprehensive Assessment of Its Impact on Investors

1. Introduction

Bitcoin and its unique properties

Bitcoin, as the first and most well-known cryptocurrency, has become the focus of global attention since its inception in 2009. Its core feature is decentralization, relying not on any central authority but rather recording all transactions through a public ledger known as the blockchain. This design not only ensures the system's transparency but also enhances security, as modifying any recorded information requires the consent of the majority of the network's computing power. Furthermore, Bitcoin's global nature means it is not directly affected by specific countries or policies, making it a unique transnational currency.

Bitcoin Halving

Bitcoin Halving refers to the event in the Bitcoin network where the newly generated Bitcoin rewards are halved every four years. This is a pre-set rule in the Bitcoin protocol designed to control the supply of Bitcoin, mimicking the scarcity of gold. Every 210,000 blocks generated, the number of new Bitcoins awarded to miners is halved. From the initial reward of 50 Bitcoins per block to the current rate of 3.125 Bitcoins in 2024. This periodic reduction in supply theoretically raises prices under constant demand, thereby having a significant impact on the market.

2. Analysis of the Bitcoin Halving Mechanism

Definition and Historical Review of Bitcoin Halving

Bitcoin halving refers to the event in the Bitcoin network where the Bitcoin reward for newly generated blocks is halved after every 210,000 blocks are produced, approximately every four years. This is a core part of the Bitcoin algorithm, designed to control inflation and mimic the gradually slowing extraction rate of rare resources. Since the Bitcoin network began operating in 2009, the initial reward of 50 Bitcoins per block has decreased to 3.125 Bitcoins in 2024. After each halving, the mining reward is reduced by 50%, which directly affects miners' earnings and the overall Bitcoin economy.

The Role of Miners and Their Response to Halving

In the Bitcoin network, miners play a key role in maintaining blockchain security and processing transactions. Whenever a Halving occurs, miners' rewards decrease, and many less efficient mining farms may be forced to exit the market due to declining profits. In response to the Halving, miners typically seek more efficient mining equipment and lower-cost power supplies to maintain competitiveness and profitability.

Analysis of the Impact of Halving on Mining Economics ###

Halving events typically lead to a significant re-evaluation of the mining cost versus market value. The profitability of mining is directly affected, as the reduction in rewards means that the same mining effort will generate less income if the Bitcoin price does not increase. This prompts mining companies to assess their operational efficiency, invest in more advanced technology, or seek cost-effective energy solutions globally.

Adjustment of miner strategies, such as equipment upgrades and changes in geographical distribution.

To adapt to the challenges brought by the Halving, miners typically adopt various strategies, including upgrading hardware, optimizing mining algorithms, and relocating to areas with cheaper electricity costs. For example, many miners have migrated from China to Central Asia, Northern Europe, and even North America to take advantage of the lower energy costs and more stable policy environment.

3. The Impact of Halving on Bitcoin Supply

Halving directly affects the new supply rate of Bitcoin. In the long run, this reduction in supply may push prices up, assuming demand remains stable. The halving event affects the economic model of Bitcoin in this way, making it more like a "digital gold".

Halving前后Bitcoin价格表现

• 2012 Halving: Bitcoin price rose from $12 to $1,300, an increase of over 100 times, taking 357 days.
• 2016 Halving: Bitcoin price rose from 650 to 18,000, an increase of more than 27 times, taking 511 days.
• 2020 Halving: Bitcoin price rose from $9,000 to $69,000, an increase of over 7 times, taking 546 days.

Short-term volatility: After the last three Halvings, the price of Bitcoin experienced fluctuations within a month after the Halving, but then saw significant increases in the following year. This phenomenon indicates that the market needs time to digest the effects of the Halving, but will ultimately respond to the reduced supply resulting from the Halving.

Long-term increase: Although there may be fluctuations in the short term, historical data shows that Bitcoin experiences significant gains in the long term after a Halving. This is because the Halving mechanism continuously reduces the supply of Bitcoin, and since the total supply of Bitcoin is only 21 million, it makes Bitcoin a scarce asset.

Halving前后Bitcoin价格表现

• First Halving in 2012: One month after the halving, the price of Bitcoin increased by 9%. In the following year, the price of Bitcoin skyrocketed by 8,839%.
• Second Halving in 2016: One month after the halving, the price of Bitcoin fell by 9%. In the following year, the price of Bitcoin soared by 285%.
• Third Halving in 2020: One month after the halving, the Bitcoin price increased by 6%. In the following year, the Bitcoin price soared by 548%.

Miner selling pressure: Miners may sell Bitcoin after the Halving, which could put pressure on prices in the short term. However, it is important to consider that miners' selling behavior is often influenced by market demand. If market demand is strong, the selling behavior of miners may be absorbed and not have a significant impact on prices.

The launch of the spot ETF

In January 2024, the first Bitcoin spot ETF will be listed in the United States, marking the recognition of digital assets by traditional financial markets. This will further drive institutional investors into the cryptocurrency market, increasing the liquidity and market depth of Bitcoin, thereby having a positive impact on its price.

4. Advantages of Bitcoin as an Investment Asset

Comparison of Bitcoin and Traditional Assets

Bitcoin is often referred to as "digital gold" due to its characteristics of non-government control and scarcity, similar to gold, but it demonstrates advantages that differ from traditional assets like gold and stocks in several ways. First, the global nature and ease of trading of Bitcoin provide advantages that transcend geographical limitations; compared to gold, Bitcoin is more convenient and cost-effective to store and transfer. Second, unlike the stock market, the Bitcoin market operates almost around the clock, offering higher liquidity and trading flexibility. Additionally, Bitcoin's price is not directly influenced by company performance or economic policies, providing investors with a potential hedge tool; during times of increased global economic uncertainty, Bitcoin may exhibit characteristics that are out of sync with traditional markets.

Over the past year, the cumulative return rate of Bitcoin has shown significant differences compared to other traditional assets. Bitcoin experienced a period of intense growth in October 2023, with its cumulative return rate rapidly soaring in a short time, far exceeding that of other assets. This sharp increase highlights Bitcoin's potential and volatility as an investment tool, while the growth of traditional assets such as stock and bond indices remains relatively stable. Additionally, gold, as a traditional safe-haven asset, has shown moderate growth and volatility, consistent with the performance of stock and bond indices. When analyzing the returns of these different assets, Bitcoin's uniqueness and high volatility offer a different path for investors seeking non-traditional growth opportunities.

The price of Bitcoin has a significant correlation with its 30-day rolling volatility. During most periods, the rise in Bitcoin's price is accompanied by an increase in volatility. Especially at the beginning of 2024, Bitcoin's price reached a peak, while volatility also increased significantly, indicating that large price fluctuations and increased uncertainty among investors contributed to greater market volatility. However, in March 2024, there was a sharp decline in Bitcoin's price, which was also reflected in the sharp rise in volatility, suggesting that during rapid price changes, the volatility indicator is an important measure of market uncertainty and shifts in investor sentiment.

In the cryptocurrency market, volatility as a measure of risk is closely linked to price, and this should be taken into account when making asset allocations.

The market acceptance and growth potential of Bitcoin

In recent years, the market acceptance of Bitcoin has significantly increased, with more and more financial institutions and technology companies beginning to support Bitcoin transactions or accept Bitcoin as a payment method. In the early years, the participation of international payment giants made Bitcoin more mainstream, providing ordinary investors with convenient investment and usage channels. Furthermore, with the development of blockchain technology and the gradual improvement of the regulatory environment for digital currencies, the long-term growth potential of Bitcoin is widely viewed positively. As a borderless currency, Bitcoin's potential role in the global economy is gradually expanding, and its growth potential has been recognized by many investors.

As of April 6, 2024, several well-known ETFs and publicly listed companies hold a large amount of Bitcoin, reflecting the market's acceptance of Bitcoin and optimism about its growth potential. The Bitcoin spot ETF holdings of large asset management institutions have reached hundreds of thousands of units, with total assets under management exceeding $50 billion. This data not only shows the positive attitude of institutional investors towards Bitcoin investment, but also suggests that Bitcoin, as an emerging asset class, is gaining recognition from an increasing number of participants in traditional financial markets.

At the same time, several companies among listed corporations hold a considerable amount of Bitcoin, totaling over 250,000, worth more than $17 billion. The participation of multinational technology companies further indicates the affirmation and expectation of the mainstream business sector regarding the future value of Bitcoin.

Overall, whether in the asset management industry or among major publicly listed companies, the large-scale holdings of Bitcoin highlight the market's deep confidence in it, as well as the potential importance of Bitcoin as an investment tool and a means of value storage in global asset allocation. This trend suggests an increase in the maturity of the cryptocurrency market and a future broader market acceptance.

5. Future Outlook and Investment Opportunities

The diversification effect of Bitcoin investment and traditional investment portfolios

Incorporating Bitcoin into traditional investment portfolios can provide significant diversification benefits. Due to the low correlation between Bitcoin and traditional financial assets, it offers a means of risk diversification for portfolios. In times of global economic instability or inflationary environments, Bitcoin even exhibits characteristics of a safe-haven asset. By analyzing Bitcoin's performance under different market conditions, investors can better understand how to leverage this digital asset to optimize the risk-return profile of their portfolios.

The low correlation characteristics of Bitcoin with traditional assets, in addition to maintaining a high correlation with Ethereum, generally show low correlation with mainstream assets such as the Dow Jones, S&P 500, Nasdaq, and Hang Seng Index. This low correlation demonstrates the advantages of Bitcoin as a diversification tool in asset portfolios, helping to mitigate systematic risks in investment portfolios. Especially during periods of turmoil in traditional markets or when facing downward pressure, this characteristic of Bitcoin may provide investors with a certain degree of protection, thereby reducing the overall volatility of the investment portfolio. Therefore, the inclusion of Bitcoin can be seen as a strategic allocation aimed at improving the risk-adjusted return of the portfolio.

Over the past decade, the traditional 60/40 investment portfolio (60% stocks, 40% bonds) has differed