Bitcoin Halving Depth Analysis: 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 attracted global attention since its inception in 2009. Its core feature lies in decentralization, relying not on any central authority but rather recording all transactions through the blockchain, a public ledger. This design not only ensures transparency in the system but also enhances security, as modifying recorded information requires the consent of the majority of the network's computing power. Additionally, Bitcoin's global nature means it is not directly influenced by specific national policies, making it a unique international currency.

Bitcoin Halving

Bitcoin Halving refers to the event where the reward for producing Bitcoin in the network is halved every four years. This is a preset rule in the Bitcoin protocol designed to control supply and mimic the scarcity of gold. Every 210,000 blocks generated, the number of new Bitcoins received by miners is halved. From the initial reward of 50 Bitcoins per block to the current 3.125 Bitcoins. This periodic reduction in supply theoretically drives up prices under stable demand conditions, 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 where the Bitcoin reward for newly generated blocks is cut in half for every 210,000 blocks, occurring approximately every four years. This is a core part of the Bitcoin algorithm, intended to control inflation and mimic the gradually decreasing rate of resource extraction. Since the Bitcoin network began operating in 2009, the reward has decreased from an initial 50 Bitcoins per block to the current 3.125 Bitcoins. After each halving, the mining reward is reduced by 50%, directly affecting miners' earnings and the entire Bitcoin economy.

The Role of Miners and Their Response to Halving

Miners play a key role in maintaining the security of the blockchain and processing transactions in the Bitcoin network. Whenever a Halving occurs, miner rewards decrease, and less efficient mining operations may be forced to exit the market due to declining profits. To cope with the Halving, miners typically seek more efficient mining equipment and lower-cost electricity supplies to maintain competitiveness and profitability.

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

Halving events typically lead to a reassessment of the mining costs versus market value. Mining profitability 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 evaluate operational efficiency, invest in advanced technologies, or seek cost-effective energy solutions globally.

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

To adapt to the challenges of halving, miners typically adopt a variety of strategies, including upgrading hardware, optimizing mining algorithms, and relocating to areas with cheaper electricity costs. For instance, many miners have moved 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 term, this reduction in supply may drive prices up under stable demand conditions. The halving event impacts the Bitcoin economic model in this way, making it more like "digital gold."

Halving前后Bitcoin价格表现

• 2012 Halving: Bitcoin price rose from 12 dollars to 1,300 dollars, an increase of over 100 times, taking 357 days.
• 2016 Halving: Bitcoin price rose from $650 to $18,000, an increase of over 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 significantly increased over the following year. This indicates that the market needs time to digest the effects of the Halving, but will ultimately respond to the reduction in supply.

Long-term Rise: Although there may be fluctuations in the short term, historical data shows that Bitcoin tends to experience significant gains in the long term after a Halving. This is because the Halving mechanism continuously reduces the supply of Bitcoin, while the total supply is only 21 million, making Bitcoin a scarce asset.

Halving前后Bitcoin价格表现

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

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

Launch of the Spot ETF

In January 2024, the first Bitcoin spot ETF was 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 Bitcoin liquidity and market depth, thereby having a positive impact on prices.

4. Advantages of Bitcoin as an Investment Asset

Bitcoin与传统资产比较

Bitcoin is often referred to as "digital gold," possessing characteristics of non-government control and scarcity similar to gold, but exhibiting different advantages in many aspects. First, Bitcoin's global nature and ease of trading provide advantages that transcend geographical limitations, making it more convenient and cost-effective to store and transfer compared to gold. Second, unlike the stock market, the Bitcoin market operates almost around the clock, offering higher liquidity and trading flexibility. Furthermore, Bitcoin's price is not directly affected by company performance or economic policies, providing investors with a potential hedging tool that may exhibit characteristics that are not synchronized with traditional markets during times of increased global economic uncertainty.

In 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 climbing, far exceeding that of other assets. This sharp increase highlights the potential and volatility of Bitcoin as an investment tool, while traditional assets such as stocks and bonds have shown relatively stable index growth. Gold, as a traditional safe-haven asset, has seen moderate growth and volatility, maintaining alignment with the performance of stock and bond indices.

The price of Bitcoin has a significant correlation with its 30-day rolling volatility. For most periods, the rise in Bitcoin's price is accompanied by an increase in volatility. At the beginning of 2024, Bitcoin's price peaked, and volatility increased significantly, indicating that large price fluctuations and increased investor uncertainty raised market volatility. In March 2024, Bitcoin's price plummeted sharply, reflected in the dramatic rise in volatility, showing that when prices change rapidly, the volatility indicator is an important measure of market uncertainty and changes in investor sentiment.

Bitcoin的市场接受度与增长潜力

In recent years, the acceptance of Bitcoin in the market has significantly increased, with more and more financial institutions and technology companies beginning to support Bitcoin trading or accept Bitcoin payments. In the early years, international payment giants such as PayPal and Square joined in, making Bitcoin more mainstream and providing ordinary investors with convenient investment and usage options. With the development of blockchain technology and the gradual improvement of the regulatory environment for digital currencies, Bitcoin's long-term growth potential is widely recognized. As a borderless currency, Bitcoin's potential role in the global economy is expanding, and its growth potential is acknowledged by many investors.

As of April 6, 2024, several well-known ETFs and listed companies hold a large amount of Bitcoin, reflecting the market's acceptance and optimism about its growth potential. Large asset management firms such as Grayscale, BlackRock, and Fidelity have Bitcoin spot ETF holdings amounting to hundreds of thousands of units, managing assets valued at over $50 billion. This not only demonstrates institutional investors' positive attitude towards Bitcoin investment but also suggests that Bitcoin, as an emerging asset class, is being increasingly recognized by traditional financial market participants.

At the same time, publicly listed companies such as MicroStrategy, Galaxy Digital Holdings, and Marathon Digital Holdings also hold a significant amount of Bitcoin, totaling over 250,000, valued at over $17 billion. The participation of multinational tech companies like Tesla further indicates the affirmation and expectations of the mainstream business sector regarding the future value of Bitcoin.

Overall, whether in the asset management industry or among major listed companies, the large-scale holding of Bitcoin highlights 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 indicates an increase in the maturity of the cryptocurrency market and a future broader market acceptance.

V. Future Outlook and Investment Opportunities

The diversification effect of Bitcoin investment and traditional investment portfolios.

Incorporating Bitcoin into a traditional investment portfolio can provide significant diversification benefits. Due to the low correlation between Bitcoin and traditional financial assets, it offers a means of risk diversification for the portfolio. In times of global economic instability or inflationary environments, Bitcoin even demonstrates 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.

Bitcoin exhibits a low correlation with traditional assets, and aside from maintaining a relatively high correlation with Ethereum, it generally has low correlations with mainstream assets such as the Dow Jones, S&P 500, Nasdaq, and Hang Seng Index. This low correlation demonstrates the advantage of Bitcoin as a diversification tool in asset portfolios, helping to spread systematic risks in the investment portfolio. Especially during periods of turbulence or downward pressure in traditional markets, this characteristic of Bitcoin may provide a certain level of protection for investors, reducing overall portfolio volatility. Therefore, the inclusion of Bitcoin can be viewed as a strategic allocation aimed at enhancing the risk-adjusted returns of the portfolio.

Over the past decade, the comparison of the standardized cumulative returns of the traditional 60/40 investment portfolio (60% stocks, 40% bonds) and various Bitcoin allocation portfolios shows that as the proportion of Bitcoin increases, the portfolio return volatility also increases. During periods of rising Bitcoin prices, the return of portfolios that include Bitcoin significantly exceeds that of the traditional 60/40 portfolio. Especially after 2020, with the significant rise in Bitcoin prices, portfolios that include Bitcoin exhibit stronger growth momentum. However, this also comes with higher volatility, particularly during peaks and declines in Bitcoin prices. This indicates that while including Bitcoin in a portfolio may enhance returns, it also increases the portfolio's risk exposure.

The rolling 12-month Sharpe ratio of Bitcoin compared to various assets shows that Bitcoin's Sharpe ratio significantly exceeds that of other assets during certain periods, indicating the highest excess return per unit of risk taken. Notably, during 2017 and 2021, Bitcoin's Sharpe ratio peaked, reflecting an excellent ratio of investment returns to risk during those time frames. However, Bitcoin's Sharpe ratio exhibits extreme volatility, corresponding with its price fluctuations. In contrast, traditional stock indices like the S&P 500 and Nasdaq have lower Sharpe ratios but also exhibit less volatility, reflecting more stable risk-adjusted return performance.