The upcoming Bitcoin halving is one of the most highly anticipated events in the cryptocurrency world, and the upcoming 2024 halving is shaping up to be particularly significant for another major cryptocurrency too, namely Ethereum.
With the relatively recent approvals of spot Bitcoin ETFs in the United States, many mainstream investors have shown particular interest in Bitcoin, something that helped the recent price hikes of the popular cryptocurrency.
It’s worth mentioning that a Spot Bitcoin ETF is an exchange-traded fund that directly holds bitcoins as its asset. This allows investors to gain exposure to the real-time price movements of Bitcoin without having to purchase and store the cryptocurrency themselves, something that is not always convenient.
However, while Bitcoin will undoubtedly be the focus of the upcoming halving—probably in a few days’ time—this could eventually pose major implications for Ethereum, the second-largest cryptocurrency by market capitalization.
What is Bitcoin halving?
Bitcoin halving is not a natural phenomenon people expect to happen at some point. It is well-embedded in the nature of Bitcoin and is a pre-programmed event that occurs roughly every four years. During the Bitcoin halving, the reward for mining new Bitcoin blocks is very simply cut in half.
This is a key part of the code of Bitcoin and is designed in such a way so as to control the supply of new coins entering circulation. The ultimate goal of this method is the capping of the total supply at 21 million BTC.
Halvings have already taken place in the past. So far, they have occurred in November 2012 (50 BTC to 25 BTC), July 2016 (25 BTC to 12.5 BTC), and May 2020 (12.5 BTC to 6.25 BTC). The next halving is expected at some point this month. As one can understand, this eventuality will further reduce the block reward to 3.125 BTC from its current 6.25.
Ethereum’s price action during previous Bitcoin halving events
While the other major cryptocurrency, Ethereum, was only launched in 2015, its price and the overall behavior and action it showed around the previous two Bitcoin halvings provide us with useful information and valuable insight into how it might be impacted by that of the upcoming 2024 one.
If we take a closer look at the Bitcoin halving that happened eight years ago, we would see that in the lead-up to the 2016 halving, the price of Ethereum actually dropped. However, it saw a modest 1.8 percent gain in the three months following the event, balancing out the immediate losses it showed.
Nonetheless, during the 2020 Bitcoin halving, which was the last one, the price of Ethereum displayed a different reaction. It initially surged by 31.8 percent in the month leading up to the Bitcoin halving and was up an impressive 88.6 percent three months after the event. This shows a significantly different reaction to the previous event. Within four months, covering the period before and after Bitcoin’s last halving, Ethereum saw its price more than double. This suggests that Bitcoin halvings can potentially also boost overall cryptocurrency market sentiment and prices, with Ethereum having a chance of benefiting from the increased attention and investment.
Factors that could amplify Ethereum’s moves in 2024
A series of several other factors could also amplify the price of Ethereum movements around the 2024 Bitcoin halving.
First, the potential but still uncertain approval of spot Ethereum ETFs in the United States, following a similar move that happened for Bitcoin, could attract much more mainstream investment into the cryptocurrency. This is something that is not happening at a great scale right now. Such a potential eventuality will most certainly show similar traits to the impact of Bitcoin ETFs being approved in January by the US Securities and Exchange Commission (SEC).
Recently, Ethereum has become increasingly deflationary with the implementation of EIP-1559 and the transition to proof-of-stake consensus. These reduced the overall supply of Ether. It is noted that the EIP-1559 is an improvement proposal that introduced significant changes to Ethereum’s fee market mechanism.
Considering all this and knowing that Ethereum has significantly lower market capitalization than Bitcoin, its price could potentially see larger percentage gains if demand significantly increases in the immediate period following Bitcoin halving.
Furthermore, the anticipated excitement around Ethereum’s ongoing development progress and other future upgrades, such as sharding and the danksharding proposal, aimed at scaling the Ethereum blockchain to support more transactions and reduce network congestion, could further fuel investor interest around or after April 2024 and the anticipated Bitcoin halving.
Risks and unknowns to consider
It is always crucial to note that there are associated risks and clearly unknown factors to consider before making an informed and definitive investment decision. The magnitude of Bitcoin and Ethereum’s price gains may be reduced and even diminish significantly with each halving cycle of Bitcoin as the events become more anticipated by the market.
Additionally, the always possible unpredictable shifts in market sentiment by random or unforeseen factors, including regulatory changes and macroeconomic conditions, could significantly impact the anticipated response of the cryptocurrency market to the 2024 halving.
There are also other potential risks directly or indirectly associated with the upcoming reduced mining rewards for Bitcoin. There are the factors of miner capitulation and potential security risks. This would be the case if a significant portion of them are forced to shut down operations due to the upcoming halving.
Finally, while the price of Ethereum may surge leading up to and immediately following the halving of Bitcoin, history suggests a sharp correction could be the result. This would be similar to the patterns observed in the past.
The 2024 Bitcoin halving: A defining moment for Ethereum
The 2024 Bitcoin halving is undoubtedly going to be a milestone and a significant event not only for Bitcoin and its investors but for the entire cryptocurrency market. This makes it clear that Ethereum is also very likely to be one of the major beneficiaries or at least be among the definitively affected players.
Based on what we have seen in previous years and previous Bitcoin halvings, the price of Ethereum could potentially even outperform Bitcoin—on a percentage basis—if factors such as market sentiment around the world and investment flows into the cryptocurrency sector increase at a rapid pace and significantly in the coming period.
However, investors should always be cautious and fully aware of fundamental risks that the volatility associated with these events brings. They should also consider the real potential for sharp corrections following any initial price surges around the time of the halving. Regardless of all these, the upcoming 2024 Bitcoin halving will undoubtedly be a crucial moment for both Bitcoin and Ethereum, and the entire crypto community will be watching closely.
Related: Bitcoin Halving and How It Might Affect Its Price
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