The cryptocurrency market is usually dependent on a four year cycle that is caused by the Bitcoin Halving.
Bitcoin Halving usually increases the price of Bitcoin because it makes the circulating supply more scarce. The question is, does Bitcoin halving affect the whole cryptocurrency market? Let’s talk about it in this article.
How Does Bitcoin Halving Affect the Market?
Bitcoin halving is a mechanism that is directly implemented by the founder of BItcoin itself, Satoshi Nakamoto, to decrease the amount of Bitcoin going into the market until the circulating supply of Bitcoin reaches 21 Million.
This is done by implementing a halving mechanism which halves the rewards per block for miners, meaning every block created by validators of the Bitcoin Blockchain, who are called miners, is rewarded with half the amount of four years prior to the halving.
For example, Bitcoin’ block rewards or rewards per block created is now 6.25 BTC, but after the next halving which is set to happen around April 2024, the reward will be cut down to 3.125 BTC.
Bitcoin halving will happen until all the Bitcoins are mined into the market, which is predicted to happen around the year 2140.
By halving the amount of Bitcoin going into the market, the new Bitcoins that are available to purchase become more limited.
Scarcity From Bitcoin Halving Increases Price
According to data from Glassnode, around 76% of all the circulating supply is held by long term holders who are not willing to sell, so new investors cannot buy them, hence if they want, they will have to compete to buy the remaining 24% or wait for new ones to be mined.
Scarcity is present because the more halvings there are the less and less Bitcoin there is available to be purchased, especially if long term holders increase.
This is why Bitcoin halving increases Bitcoin price, but in regards to the whole crypto market, the effect of halving is shown because of the overall capital flow in the crypto market.
Understanding Crypto Capital Flow
The narrative going around is that investors, especially new ones, are usually greedy, so when they see Bitcoin price goes up, they will look for other cryptocurrencies that are also going up in hopes to attain more profit.
This will create a capital flow to other cryptocurrencies, essentially affecting the whole crypto market to go up because of the buying volume that it produces.
Analysts across the crypto market suggest that the capital flow always starts at Bitcoin and then leads to Ethereum as the second biggest crypto in the market.
After that, investors will look to other larger market capitalization cryptocurrencies to find more profit.
When they run out of crypto to look for in the bigger market capitalization, they will go to medium market capitalization which stands at a rank of hundreds. Lastly they will finish with lower capitalization which are known as memecoins.
Will Bitcoin Halving Affect Other Cryptocurrency?
To take a deeper look on why Bitcoin halving affects the cryptocurrency market, let's compare different types of cryptocurrencies and their movement after a Bitcoin halving.
In this scenario we will be comparing four types of cryptocurrencies which are BTC, ETH, larger market capitalization which will be represented by MATIC, and medium market capitalization which will be represented by XTZ.
The smaller caps are not included because of how volatile it is which makes it not really relevant to the Bitcoin halving.
This is because most memecoins can always rise even in the bear market because all it takes is a good marketing strategy and community engagement.
Looking at the graph above, if we compare the movement of BTC, ETH, MATIC, and XTZ, all of them have experienced a significant price increase after the 2020 Bitcoin halving.
Comparing Price Gains Based on Market Capitalization
From the halving of May 2020 until the peak bull market of Desember 2021 BTC itself rose about 488.11%, ETH rose about 1,486.76%, MATIC rose about 12,261.75%, and XTZ rose about 54%.
As you can see the Bitcoin halving of 2020 affected all the cryptocurrencies even though their market capitalization are different.
The amount of price increase also differs in regards to the success and accomplishment that the project itself had.
Considering Tezos (XTZ) was more inactive compared to Polygon (MATIC) it made sense that the price increase is significantly different, but most importantly both rises after the Bitcoin halving.
Conclusion
Overall, Bitcoin halving usually has a positive impact that increases the price of not only Bitcoin but other cryptocurrencies in the market, triggering what is known as the bull market.
But keep in mind that not all cryptocurrencies that increase after Bitcoin halving will stay high as some of them might go down, even lower than before the halving itself, if the project is considered inactive by the community.
So investors need to make a good strategy, including an exit strategy to make sure that your portfolio increases overtime and the initial capital is kept safe.
In conclusion, the Bitcoin halving usually affects all the cryptocurrencies positively, but has to be treated with a good strategy to be capitalized perfectly with little to no losses.
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