Bitcoin, the largest and most popular digital currency, has attracted massive attention in recent years thanks to its high price volatility, which presents both huge rewards and substantial risks to investors. BTC is preparing for its halving event, which many consider bullish for the coin. However, over the years, Bitcoin has witnessed significant losses after the event. But why is that? We seek to find answers in this article.
Bitcoin Halving Explained
Before we learn about the factors that lead to massive price corrections after halving, it is important to understand Bitcoin halving. What is it? This is a pre-programmed event intended to reduce the rate at which new coins enter the Bitcoin circulating supply. During the Bitcoin halving, miner rewards are cut by 50%. Most long-term BTC holders view this event as bullish, with CoinGecko reporting gains of over 3,000% within 12 months after every halving.
However, shortly after the surge, Bitcoin’s value usually starts going down, plummeting into what’s called the “crypto winter.” The coin has seen an average drop of 80% after the previous halving events.
Bitcoin halving happens every four years. It was introduced by Bitcoin founder Satoshi Nakamoto. The recent halving occurred in 2020, where miner rewards were reduced to 6.25 BTC from 12.5 BTC. In this year’s halving, which is expected to take place on April 20th, the miner rewards will drop to 3.12 BTC.
Generally, the hype around halving lasts for roughly a year, and then what follows is a massive price correction. The first-ever halving event happened in late 2012. In September of the following year, BTC reached $1,120. The coin declined to $175 within two months, representing an 86% plunge.
The second Bitcoin halving took place in July 2016. Within a year, BTC hit $20,000 before it crashed to $3,190 in the months that followed. That was an 83% drop. After the 2020 halving, Bitcoin rose to $69,000 in November 2021. The coin then saw a 78% price correction by June the following year after crashing to $15,630.
Why Bitcoin Crashes After Halving
One of the several reasons that cause BTC to crash after halving is profit-taking by traders, who have been holding their positions for a long time. The “January Effect” is usually the main driver of profit-booking.
Most investors tend to believe that the prices of stocks rise in January due to intense buying pressure after facing a price decline in the previous month. That said, there is a likelihood that investors find December the right time to rebalance their investment portfolios by cashing out risky assets such as Bitcoin in that month and investing in stocks at the start of the year, which is usually a bullish period for equities.
Mining capitulation is another factor that drives Bitcoin’s price down after halving. When miners are having a profitable season, they accumulate BTC instead of selling. However, as mining difficulty increases, these miners sell their Bitcoin holdings to buy more machines to stay ahead of the competition. So, the intense selling pressure put on Bitcoin by miners may cause the price of the coin to plummet.
Despite the massive price corrections after halving hype fades, Bitcoin has shown resilience over the years as it continues to set new all-time highs.
How Do Bitcoin Investors Cope?
Michael Saylor, the founder of the largest institutional Bitcoin holder, MicroStrategy, told Bloomberg journalist in 2022 that those looking to invest in BTC should hold the coin for at least four years to realize profits. He argued that no Bitcoin investor has ever lost funds holding BTC for that period.
With all said, as the 2024 Bitcoin halving nears, investors are waiting to see what happens after the event. Most of them are confident that history will repeat itself, with expectations that BTC will cross the current high ($73,787) to rally further. Analysts anticipate that a price correction will happen in mid-2025.
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