Market Byte: Counting Down to 2024 – Exploring Bitcoin Halvings

Zhao B&W
Michael Zhao
Last Update 05/24/2023

Amidst the rapidly evolving world of cryptocurrencies, Bitcoin remains the trailblazer, capturing the imagination of investors, technologists, and the general public since its inception in 2009. With its finite supply capped at 21 million coins and a unique process known as “halving” governing its supply dynamics, Bitcoin has distinguished itself from traditional fiat currencies by mimicking the deflationary nature of rare commodities. Looking ahead to the next halving, which is expected to occur a year from now in May 2024, this piece will delve into the impact halvings have on the ecosystem, and why they are crucial to understanding Bitcoin’s long-term prospects. Further, the potential influences on Bitcoin’s price changes around halving events, such as the stock-to-flow model, miner selling pressure, and prevailing macroeconomic factors will be examined.

Halvings and Historical Price Action

New bitcoins are generated via a process known as “mining”, where computers solve computationally intensive problems to earn block rewards. The monetary policy of Bitcoin is deflationary by design: roughly every four years, the reward for mining is halved, slowing the creation of new bitcoins by half.

Figure 1: Bitcoin’s Monetary Inflation Schedule

The halving event in Bitcoin’s protocol is designed to control inflation and ensure a steady, predictable supply of bitcoins. This is in stark contrast to conventional fiat currencies, where central banks can modify the money supply unpredictably. The combination of Bitcoin’s fixed total supply and decreasing creation rate creates scarcity, which some theorize could drive its value upwards over time. 

The charts seem to agree: history shows us that Bitcoin’s price has consistently risen in the months following each historical halving event:

Past performance is not indicative of future results. 

Source: CoinDesk, Coin Metrics. For illustrative purposes only.

This would seem to be incompatible with the idea of efficient markets1. Why wouldn’t market participants fully anticipate and price in such a well-telegraphed event? Multiple explanations for this behavior have been proposed.

One framework to understand how Bitcoin halvings could influence its price is the Stock-to-Flow (S2F) model. S2F is a tool for quantifying the “scarcity” of a particular resource, and has been extensively applied to commodities like gold and silver. Here’s how it works:

  • Stock: The “stock” in the Stock-to-Flow model refers to the total available supply of a commodity. For Bitcoin, this would be all the bitcoins that have been mined and are currently in circulation.
  • Flow: The “flow” is the amount of new supply added to the stock or supply over a given period of time. For Bitcoin, the flow is the number of new bitcoins being mined and released into circulation.
  • Stock-to-Flow Ratio: The S2F ratio is calculated by dividing the stock by the flow. This gives a measure of scarcity; the higher the S2F ratio, the more scarce the resource is. For example, gold has a high S2F ratio because its supply (stock) is large and it’s mined (flow) at a relatively slow rate.

In the context of Bitcoin, the S2F model becomes particularly interesting due to Bitcoin’s halving events. Each time, the reward for mining a new block of bitcoins is halved. This effectively cuts the “flow” of new bitcoins in half, which, all else being equal, would double the S2F ratio and increase Bitcoin’s scarcity.

Figure 2: Bitcoin’s Stock-to-Flow model

Past performance is not indicative of future results.

Source: Glassnode, as of 5/15/23

The Stock-to-Flow model offers a straightforward and quantifiable way to assess Bitcoin’s scarcity. By accounting for the number of bitcoins currently available and the rate at which new ones are created, it presents a clear picture of how “scarce” Bitcoin is at any given time. Historical data appears to validate the model, as there has been a general correlation between Bitcoin’s price and the S2F model. As the ratio increases, typically indicating increased scarcity, the price has tended to rise.

While the Stock-to-Flow model provides an intriguing perspective, it has several limitations. First, it makes a simplifying assumption that scarcity is the primary determinant of Bitcoin’s price. This might not always hold true as numerous other factors also influence the price – like demand, market sentiment, technological advancements, and broader economic conditions. Another potential pitfall of the S2F model is its reliance on Bitcoin’s relatively short history. Bitcoin has only experienced a few halving events, which means the model is extrapolating based on a small dataset; the correlation observed between the S2F ratio and Bitcoin’s price might not necessarily persist into the future. Finally, the biggest issue with the S2F model is that it presupposes that the market is fully aware of, and responds to changes in Bitcoin’s scarcity. Yet, the issuance of Bitcoin is already known since inception; logically, it doesn’t make sense that price follows scarcity if the scarcity is already known in advance. 

In essence, while the Stock-to-Flow model provides a useful perspective on Bitcoin’s scarcity, it should not be used in isolation. It’s a tool among many, and investors should always consider a broad range of models when attempting to predict Bitcoin’s price. 

A Miner’s Perspective

One theory that presumes decreased rewards are bullish for Bitcoin revolves around the idea that there is less sell pressure after a halving event. Because miners need to cover operating costs, they are forced to sell a certain amount of their mined rewards a day. This leads to constant potential daily sell pressure that needs to get absorbed into the market. However, with a halving event, there is less bitcoin to sell, because less bitcoin is mined. How does this theory hold up in reality?

We ran a regression analysis using on-chain and market data to determine the impact of miner selling on the price (Figure 3). At a high level, we used price percentage change as the dependent variable, and miner bitcoin selling activity relative to bitcoin spot volume, to see if there was a relationship between how much the miners sold versus the price change. 

Figure 3: Miner Sell Pressure Impact on Bitcoin Price

Past performance is not indicative of future results.

Source: Grayscale Research, Coin Metrics (trusted exchange volume data), Glassnode (miner supply data), data from 1/1/2016 – 5/1/2023

Interestingly, historical data from January 1st 2016 to May 1st 2023,  as shown in Figure 3, suggests that even when the amount of Bitcoin sold by miners exceeds 1% of the total spot volume of that day, we don’t see a statistically significant impact on price. These findings challenge the existing paradigm, suggesting that the impact of halvings on the price of Bitcoin through miner sell pressure may have been overstated in the past. 

Macro Influence

What about the macroeconomic factors that surround the halving? While Bitcoin’s internal dynamics are important, we must also consider the broader economic context. Macroeconomic factors, including global economic volatility and shifts in monetary policy, can exert significant influence on Bitcoin’s price. Let’s dive into each one.

Figure 4: Bitcoin Price Returns After Halvings

Source: Grayscale Research, Coin Metrics

Past performance is not indicative of future results.

The Y-axis percent returns scales differ for each graph to accommodate the range of values being represented during each halving. You should refer to each respective axis label when reviewing the graphs.

2012 Halving (November 28, 2012): In the backdrop of the European debt crisis, Bitcoin piqued public interest as an alternative store of value. The possibility of either managing the crisis or letting it escalate had significant implications for global economic trajectories. The price of Bitcoin increased from about $12 to nearly $1,130 within a year of the halving, and its market cap grew from just over $100 million to around $13 billion. The late 2013 prohibition on Bitcoin transactions by China’s central bank may have further fueled the price surge as people turned to Bitcoin to evade capital controls.

2016 Halving (July 9, 2016): The period leading up to and following the second halving was characterized by a growing interest in cryptocurrencies, as evidenced by the boom in Initial Coin Offerings (ICOs), which grew from $240 million in 2016 to over $5.6 billion in 2017. The number of daily Bitcoin transactions also grew from about 200,000 to over 350,000 in the same period, reflecting increasing adoption. Growing institutional recognition likely helped drive the Bitcoin price to its peak during this period, from about $650 to almost $20,000 within a year and a half of the halving.

2020 Halving (May 11, 2020): During the COVID-19 pandemic, large-scale stimulus measures increased inflation expectations, reflected in the rise of the 5-year breakeven inflation rate2 from 0.14% to 2.56%. This, in turn, likely drove people towards Bitcoin as an inflation hedge. Increased institutional adoption was also evident, with MicroStrategy investing >$2 billion in Bitcoin. Accompanied by landmark announcements like PayPal supporting Bitcoin, the price of Bitcoin rose from about $8,600 at the halving to an all-time high of around $64,800 in April 2021, and its market cap crossed $1 trillion.

A macro analysis of the three Bitcoin halvings in 2012, 2016, and 2020 reveals the complex interplay between Bitcoin’s programmed scarcity and the broader macroeconomic environment. Each halving was accompanied by distinct global economic circumstances that influenced Bitcoin’s price trajectory. Despite these varying contexts, a common theme emerges: heightened economic uncertainty seems to coincide with increased interest in Bitcoin, potentially amplifying the price effects of the halvings. However, it’s also evident that the relationship between macroeconomic conditions and Bitcoin price is multifaceted and can be influenced by a multitude of factors beyond the halving itself.


While it may be tempting to view Bitcoin’s halvings as a catalyst for price appreciation, our exploration throughout this piece suggests that the truth is far more nuanced. Bitcoin’s price has historically followed an upward trajectory surrounding each halving event, but attributing these price increases solely to the halving oversimplifies the complex dynamics at play. 

In essence, while the halving event is certainly significant, it’s not the only piece of the puzzle. It serves as a predictable, scheduled event within the Bitcoin ecosystem, around which a multitude of unpredictable factors swirl. Understanding these drivers can equip us with a more comprehensive perspective, fostering informed decision-making within the world of Bitcoin. 

Important Information

The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. 

Certain information set forth in this document may contain “forward- looking statements”. Forward-looking statements are provided to allow potential investors the opportunity to understand Grayscale’s beliefs and opinions in respect of the future so that they may use such beliefs and opinions as one factor in evaluating an investment. The information in this document is not a guarantee of future performance and undue reliance should not be placed on it. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance of results expressed or implied by such forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability or completeness. You should not make any investment decisions based on these estimates and forward-looking statements.

1. The Efficient Market Hypothesis (EMH) suggests that financial markets are efficient and quickly incorporate all available information, making it difficult to consistently outperform the market. It comes in different forms, but at its core, the EMH states that it is nearly impossible to consistently achieve above-average returns by exploiting market inefficiencies.

2. The breakeven inflation rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities (BC_5YEAR) and 5-Year Treasury Inflation-Indexed Constant Maturity Securities (TC_5YEAR) shown on the FRED website. The latest value implies what market participants expect inflation to be in the next 5 years, on average.

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