With Bitcoin off on an upward rally, many are pointing to the upcoming halving, due on May 12, as the underlying reason. Not unfairly, either. Precedent demonstrates that Bitcoin's (BTC) price usually ends up higher afterward a halving, even if it takes several months.

The halving was programmed into Bitcoin'due south source lawmaking from the very start as Satoshi Nakamoto specified that at that place would simply e'er be 21 million BTC issued. Every 210,000 blocks, the block reward is cut in one-half. Therefore, at the genesis block in 2009, miners received l BTC as a reward. This was reduced to 25 BTC in 2022, and again to 12.5 BTC in 2022. Now, miners volition see their rewards cutting in half once over again.

Later on the first halving, the price rose from $12 in November 2022 to a top of $1,100 in November 2022. Similarly, the second halving saw a sharp increase 11 months later, rising from around $650 in July 2022 to over $2,500 in May 2022. The about straightforward estimation of this is that the halving introduces a constraint on supply, driving demand.

However, the terminal halving was in 2022, before the initial coin offer mania, earlier the development of cryptocurrency derivatives, and a long time before the coronavirus started disrupting the global economy. Thus, considering Bitcoin'southward cost is rumored to strongly correlate with the hash rate of the network, tin can the previous halvings exist an indication of what to wait from the next ane?

Downwardly pressure level on mining profitability

The hash rate is an indicator that'due south worth watching in the period around a halving. A college hash charge per unit indicates more than computing power in the network — or, in other words, high participation from miners.

Hash rates effectually previous halvings tended to show similar trends to cost. For instance, in the 2022 halving, the hash rate showed a steeper increase a twelvemonth later, indicating that more miners were attracted by the increment in Bitcoin'due south price.

However, from the chart above, it's evident that there was no pregnant drop off in the hash rate after the 2022 halving. In fact, the hash rate stayed steady immediately mail service halving despite the obvious drop in mining profitability.

Mining rewards are but one component of overall mining profitability. Transaction fees are some other way that miners generate income, and looking at transaction fees around the last halving, in that location was also no significant change following the event. Like cost and hash charge per unit, transaction fees went up 11 months after the last mining consequence in 2022.

Related: Past Halvings in Review: Case for an Firsthand Bitcoin Upsurge Is Flawed

Lennix Lai, the director of financial markets at OKEx, told Cointelegraph that miners may exist put off by the prospect of diminishing rewards and merely earning income from transaction fees:

"With the expected cut in block rewards, I think the industry would start by questioning the basic assumption of halving — whether or non the transaction fees lone would exist sufficient to sustain the entire Bitcoin network."

Is Bitcoin's hash rate the key indicator?

There are more firsthand precedents for halvings as Bitcoin Cash (BCH) and Bitcoin SV (BSV) both recently underwent halving events — and both saw a driblet-off in hash rate immediately afterward. Diego Gutierrez Zaldivar, the CEO of IOVlabs, which operates the RSK network, told Cointelegraph that in that location's an explanation for this:

"These networks share the hashing algorithm with Bitcoin, so hashing power continuously migrates amid them. When the two small-scale networks reduce their mining subsidies, miners likely moved to BTC, looking for more profitable grounds. When the Bitcoin halving occurs, no such alternative network exists, then we will likely see miners whose operating costs are higher than the price of BTC drop off birthday."

Does this mean that opposite to the previous halvings, a drop in the Bitcoin network hash rate post-halving is on the tabular array? Zaldivar doesn't believe and then, elaborating: "Bitcoin has around 50 times the economical security of Bitcoin Cash and around times the economic security of Bitcoin SV, so even in the case of a big drop in hashing ability, Bitcoin volition remain the safest decentralized network in the world." Joel Edgerton, the COO at bitFlyer, agreed that in that location's a gamble to smaller miners:

"I expect the miners will take a tough time with weaker, less capitalized miners exiting the business. Their acquirement mix volition movement more than to transaction fees, which could have an interesting touch and open up upwardly possibilities for firms using Bitcoin to compete based on transaction processing speed."

Related: Miner Survivability Postal service-Halving: A Hash Rate Comparison

The Bitcoin halving is unlikely to follow the BCH and BSV examples. As Zaldivar pointed out, the Bitcoin network is far more secure, to brainstorm with. Secondly, many of the experts Cointelegraph spoke to believe that the unprecedented nature of the current economical conditions puts Bitcoin into a stable position right now.

Central banks are at present using quantitative easing to pump fiat money into their economies, which will ultimately cause aggrandizement. Edgerton pointed out to Cointelegraph that many bought into Bitcoin during the recent crash, and and so the drivers for the electric current halving may be dissimilar:

"The disquisitional differentiator in this halving is that coincides with a massive increase in money supply equally governments react to the economic fallout from the COVID-19 health crisis. Since Bitcoin was born from the fallout of the concluding economic crunch, this plays very well to its strengths as a shop of value."

Samson Mow, the primary strategy officer of Blockstream, agreed, telling Cointelegraph: "This Bitcoin halving is unique because of the unprecedented amount of coin being printed. It's very bullish for Bitcoin." He went on to say:

"I think nosotros've yet to see the total extent of economic uncertainty and COVID-xix impacting Bitcoin. The average person is only just starting to realize that Bitcoin is the just real safety haven for their coin."

Aside from COVID-19, in that location are other influences at play hither, as well. Bitcoin differs from many other cryptocurrencies due to the vast market for derivatives. Meltem Demirors, the chief strategy officer of Coinshares, has previously warned that this ability to speculate on Bitcoin'due south toll without touching the underlying asset indicates this halving will be different from the others.

A Journey into the Unknown

On balance, at that place are too many other factors at play with this halving to brand a fair comparison with the previous two events, as almost all variables take inverse, even for the miners and the hash rate they output. The presence of derivatives and the vastly inflated size of the Bitcoin market and network since 2022 are significant enough.

However, the black swan of the COVID-xix crunch and all the economic dubiousness it brings is unprecedented for all assets, including Bitcoin. Overall, almost experts seem to agree that the outlook for the network and the ecosystem, in general, is bullish. Therefore, it seems that the best advice for this halving is to sit dorsum and enjoy the ride.