Much remains unknown about Bitcoin’s ( BTC ) quadrennial halving event, which reduces the block rewards earned by Bitcoin miners by 50%, who play a critical role in validating BTC transactions and securing the system. 

Will miners go bankrupt or flee the network? Will the hash rate collapse? Will the price of Bitcoin rise and then fall? Will the halving spur further crypto adoption? And so on.

But this much is certain: Every four years, miners’ block rewards are cut in half — this is pre-coded into the network — and at some point in April 2024, once the 210,000th block is validated, miners’ rewards will fall from 6.25 BTC per block to 3.125.

All halvings are both similar and different, but this year’s could be unique because of the new spot market Bitcoin exchange-traded funds (ETFs), launched in January, which have helped drive the price of Bitcoin to all-time highs, bringing the crypto sector as a whole close to a $3 trillion market capitalization.

This raises yet another question: Given that the Bitcoin ETFs appear to have opened many institutions’ eyes to Bitcoin as an alternate asset, will the April halving accelerate the trend?

Some think so. “Institutions are still learning about this asset class, but understanding the monetary policy of Bitcoin will only drive more interest,” Dante Cook, Swan Bitcoin’s head of business, told Cointelegraph.

The halving is an important demonstration that “Bitcoin security can continue despite a lower ‘security budget,’” Ethan Vera, chief operating officer at Luxor Technology Corporation, told Cointelegraph, adding:

“We expect there to be continued institutional interest in both the underlying commodity and also the companies operating in the space, such as miners.”

For institutions that want to buy the coin itself, cutting the block reward in half is arguably an enticement, added Joe Nardini, senior managing director at B. Riley Securities. It’s more evidence that the BTC supply is not going to balloon, which is a “net positive” for many prospective institutional investors, Nardini told Cointelegraph.

However, not all agree that the halving alone will bring large corporations or financial institutions contemplating crypto into the Bitcoin fold.

“The halving shouldn’t have an impact on whether large corporations/institutional investors will invest in Bitcoin for the first time,” Ruben Sahakyan, director of investment banking at Stifel Financial, told Cointelegraph.

Investors have clearly embraced the spot market Bitcoin ETFs — as seen by the net inflows — and further regulatory clarity will help to drive industry adoption and investor base, continued Sahakyan. “However, some investors are on the sidelines when it comes to investing in mining stocks as they await what impact the halving has on miners’ profitability and volatility is reduced.”

Others suggested that halvings may not be quite as they used to be, i.e., fraught with drama.

“The halving is likely not as big an event as the industry is well prepared and has been deleveraging in anticipation of the potentially reduced economics,” Taras Kulyk, founder and CEO of SunnySide Digital, an infrastructure provider, told Cointelegraph. “Additionally, the massive growth of L2 technologies on top of the Bitcoin Network has increased transaction fees — blunting the impact of the halving even more.”

A “halving-induced” upswing?

Historically, Bitcoin has risen in price in the months leading up to a halving, which is happening again in 2024. Indeed, a JPMorgan analyst referred at the end of February to a “Bitcoin-halving-induced euphoria” gripping the crypto market. But is that really the case?

“There are two major narratives and drivers for Bitcoin currently,” Chris Kuiper, director of research at Fidelity Digital Assets (FDA), told Cointelegraph. The first is the recent approval of spot Bitcoin ETPs [exchange-traded products], which was a major milestone in Bitcoin’s history and a continued road to adoption.”

The second, Kuiper continued, is the upcoming halving. “As in the past, it’s expected that there will be little effect on the Bitcoin network itself. We may see an initial fall in hash rate, but it will likely only be a matter of time before it recovers to its previous levels and once again moves higher, which wouldn’t affect the operation of the network.”

Which of these two events is more impactful? We don’t know if the price surge results from the halving or the spot market Bitcoin ETF approvals, B. Riley Securities’ Nardini said, but it’s more likely “ETF induced,” in his opinion.

The JPMorgan analyst also warned the price of Bitcoin could drop to $42,000 after the halving. That, too, would follow the script of past halvings. Hash rate — the overall computing power of the network — is what makes the Bitcoin network more secure. In the past three halvings (2020, 2016, and 2012), the hash rate fell initially but quickly recovered within six to 31 days.

Bitcoin hash rate briefly fell after the last halving in May 2020, but quickly recovered. Source: CoinWarz

“What is different today from historical halvings are the ETFs, which have dramatically changed the Bitcoin ecosystem,” Clark Swanson, entrepreneur and former CEO of Bitcoin mining firm Blockcap, told Cointelegraph.

The new ETFs have created a “demand shock to Bitcoin’s limited supply,” said Swanson. This will “drive prices even higher and blunt some of the market forces that have traditionally posed challenges for miners.”

“Post halving, there is going to be exactly 50% less Bitcoin produced — or available for sale — while ETF demand seems to remain, which should continue to drive volatility,” agreed Sahakyan. “Some of the miners have again started building up BTC balance sheets, which further reduces the available supply of Bitcoin.”

Others, however, anticipate some surprises. Aki Balogh, co-founder and CEO of DLC.Link, told Cointelegraph that “the supply shock that will come from reduced mining revenues is real and will play some effect.”

Some of that has already been priced in, “but there are unknown second and third-derivative effects that will only come out after the halving has happened,” continued Balogh. Still, “I think scarcity will push the price up somewhat.”

In the longer term, history suggests the hash rate will recover, and the price of Bitcoin continue its ascent to new heights. The halving is a unique situation where the block reward periodically decreases, and in this way, “the inflation rate of the network is pre-coded,” said Vera. “Historically, we have noticed that the decrease in new Bitcoin issuance has a positive impact on price.”

Wherefore BTC proxies?

What about traditional BTC proxies like MicroStrategy and some of the larger BTC mining firms? Will they fare better or worse when the dust settles on the 2024 Bitcoin halving?

Economically speaking, halvings primarily influence BTC supply, said Balogh, whereas “the ETFs, MicroStrategy’s well-publicized purchases, and even El Salvador’s daily purchases of BTC impact the demand side.” The spot market ETFs are likely to affect Bitcoin proxies like MicroStrategy more than the halving. Added Balogh:

“Will MicroStrategy continue to serve as a proxy for BTC, given that one can buy BTC outright in an ETF? Probably slightly less so than before. It’s cleaner to buy an ETF versus a stock that is controlled by a Board of Directors with unknown objectives.”

On the other hand, MicroStrategy recently rebranded itself as a Bitcoin development company, he continued, while the new ETFs “are capital-inefficient in the sense that the BTC just sits there. Investors may prefer Michael Saylor’s more active management strategy versus the ETFs.”

One-year MicroStrategy stock price chart. Source: Yahoo Finance

Cook, for his part, foresaw no diminution in MicroStrategy’s role as a BTC proxy post-halving. “MicroStrategy’s stock is up nearly 450% over the past year and over 250% over the last six months. It’s one of the ways institutions will seek to gain exposure to the asset class of Bitcoin,” he told Cointelegraph.

How will miners fare?

What about miners’ prospects? They’re most directly affected, after all.

“Each mining rig has its own profitability price point,” Fidelity’s Daniel Gray noted in a recent blog. “Every operation will be going into this event assuming they have enough reserves on hand to withstand the negative pressure of the halving.”

Maybe the global BTC mining sector today is larger and more stable than in past years.

“The mining sector overall has matured since the last halving and is significantly better positioned, but some will struggle unless the [BTC market] price continues to rise as the network difficulty continues to increase amid outstanding machine orders,” said Stifel’s Sahakyan.

“It appears miners are in better shape overall in terms of lower levels of debt and potentially better control over their costs, such as electricity,” added Kuiper. “What’s also helping miners this cycle is the price appreciation before the halving — something that also hasn’t been seen in previous cycles.”

However, “for smaller miners, it will be tough,” predicted Nardini. They may need to raise capital. Publicly held mining firms, by comparison, will generally have an easier time raising capital.

Since the beginning of 2024, Bitcoin miners with one peta hash of mining equipment can count on earning roughly $115 a day, Vera told Cointelegraph, which is “a significant improvement since the beginning of the year given the recent price movement,” but still:

“With the halving coming up and a relentless growth of network hash rate certain miners are going to be at risk of negative profitability post-halving.”

Many miners see the writing on the wall — lower and lower block rewards — and are looking more at supplemental revenue opportunities. “Transaction fees on the Bitcoin network are crucial for miners long term,” said Vera, “and we are seeing many start investing time and capital into developing the ecosystem of applications being built on Bitcoin.”

As important as ETFs?

If one compares the introduction of the spot Bitcoin ETFs in January with the quadrennial Bitcoin halving in April, which will posterity deem more consequential?

Few this past week were willing to say the halving. The halving is “second in importance to the ETFs,” said Nardini flatly.

Still, halvings are unique to Bitcoin and represent a sort of advertisement for what is good and enduring about the cryptocurrency (e.g., it’s “hard money”), as well as some of the attendant risks like falling hash rate.

From an adoption standpoint, it’s important for people to see that Bitcoin’s “monetary policy” once again is performing as programmed and expected, Kuiper said, “and it may once again reinforce to investors that Bitcoin, as an asset, is one that’s increasingly becoming scarcer as compared to other financial assets, commodities, or currencies.”

Or, as Swanson noted:

“It is the finite supply and the halving of Bitcoin, which are characteristics that help make Bitcoin the hardest money ever created.”

For this reason, he added, “It also may be the first man-made money to survive more than 200 years.”