On average, Bitcoin price returned 3,230% gains within one year after each halving, the team at CoinGecko noted in an extensive report.
However, that is misleading moving forward, “considering Bitcoin’s novelty in its early years, lack of market maturity, and the case of diminishing returns.”
Before delving further into halvings’ diminishing returns, the CoinGecko report looks into exactly how the BTC price behaved in the prior three halvings.
When the Bitcoin mainnet launched on January 3, 2009, the block reward “was a generous 50 BTC.”
The CoinGecko report pointed out that the first halving: November 28, 2012, “from 50 BTC to 25 BTC. Within 12 months (to November 28, 2013), BTC price rose from ~$12 to $1,075, leading to an 8,858% valuation increase.”
Bitcoin’s inflation rate went “from 25.75% to 12% by January 2022.”
Second halving: July 9, 2016, “from 25 BTC to 12.5 BTC. Within 12 months (to July 9, 2017), BTC price rose from ~$650 to $2,560, leading to a 294% valuation increase. Bitcoin inflation rate went from 8.7% to 4.1% by August 2016.”
Third halving: May 11, 2020, from 12.5 BTC to 6.25 BTC. Within 12 months (to May 11, 2021), BTC price rose “from ~$8,727 to $55,847, leading to a 540% valuation increase. Bitcoin inflation rate went from 3.7% to 1.8% by June 2020.”
From this pattern, it is clear that Bitcoin halvings tend “to bring diminishing returns.”
Although the gain percentage “following the third halving is greater than from the second halving, this is clouded by the Fed money supply increase. By increasing the M2 money supply, the Federal Reserve effectively repriced BTC.”
The CoinGecko report also mentioned that this became apparent “once the Fed started suppressing asset prices with a new hiking cycle in March 2022, reversing the trend.”
The report pointed out that “a week before Bitcoin’s first halving on November 28, 2012, Bitcoin’s market cap was only $123.3 million. A day after the halving, it went up to $130.3 million. Within three months, by the end of February 2013, Bitcoin’s market cap was $335.2 million. Only a month later, Bitcoin was closing in on the one billion milestone at $947.4 million market cap.”
The report from CoinGecko also mentioned that the second halving on July 9, 2016 “had a different dynamic. In anticipation of the halving, Bitcoin market cap rose to a yearly high of $11.9 billion, a month before. A week prior, Bitcoin’s market cap held at $10.2 billion. Three months later, the market cap actually dropped to $9.6 billion. After a market correction, it took until January 2017 for a new all-time high (ATH) of $16.4 billion to be reached.”
Lastly, Bitcoin’s third halving in May 2020 “started at $182.5 billion. Within three months, Bitcoin’s market cap increased to $217.3 billion.”
According to the report, the price movements show “that market events and maturity play a larger role than halvings, although they serve as jumping points. In August 2016, the Bitfinex hack was the anomaly that neutralized the 3-month gains. Yet, it was only a delay until the new ATH market cap in January 2017.”
In effect, Bitcoin halving is “an inflation-dampening mechanism. In contrast to fiat currencies which have unpredictable inflation rates based on central bank’s actions, Bitcoin’s inflation rate is predictable, immutable, and on a downward trajectory with each halving.”
At each halving event “every four years, a miner’s reward for securing and processing BTC transactions is cut in half. As the supply inflow of new BTC decreases, the price of existing BTC becomes more attractive.”
Methodology
The research examined the price history of Bitcoin “after each halving, and which factors played a role in Bitcoin price movements.”
Factors which may drive Bitcoin price “in the post-halving future were also analyzed.”
Bitcoin price, and market cap data were “sourced from CoinGecko, while circulating supply data was obtained from Blockchain.com, as of March 25, 2024.”
This update from CoinGecko was co-authored by Shane Neagle.
