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The economics of Bitcoin halving: Understanding the effects on price and market sentiment

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Bitcoin (BTC), the pioneering cryptocurrency that sparked a global revolution in digital assets, operates on a unique monetary policy. One of the defining features of Bitcoin is its halving event, which occurs approximately every four years.

This article will explore the economics behind Bitcoin’s halving, examining its effects on price movements and market sentiment. By understanding these factors, investors and enthusiasts can gain valuable insights into the cryptocurrency’s market behavior.

Related: How does the monetary supply affect cryptocurrencies?

What is a Bitcoin halving?

Bitcoin halving, also known as a “halvening,” refers to the predetermined reduction in the rate at which new BTC are created. It is programmed into the Bitcoin protocol and occurs every 210,000 blocks, which is roughly every four years. The halving event halves the block reward, reducing the number of newly minted Bitcoin awarded to miners.

Supply and demand dynamics

A Bitcoin halving directly impacts the supply and demand dynamics of the cryptocurrency. By reducing the rate at which new BTC enters the market, halving effectively reduces the available supply. As the supply decreases, assuming demand remains constant or increases, basic economic principles suggest that the price of Bitcoin should rise.

Supply and demand is the basic economic principle supporting a price increase in response to Bitcoin’s halving. The law of supply and demand states that prices tend to increase when a commodity’s supply declines, and demand either stays the same or rises. The Bitcoin halving slows the rate of new Bitcoin creation and market release.

As a result, there are fewer newly created BTC available for purchase. The diminished supply produces a scarcity effect, which might push the price upward if demand for Bitcoin stays the same or rises.

Bitcoin’s controlled supply is a key factor contributing to its value proposition. The total supply of Bitcoin is limited to 21 million coins, and the halving mechanism gradually reduces the rate at which new BTC are produced until the maximum supply is reached. This scarcity aspect, coupled with the increasing recognition and adoption of Bitcoin, can create a perception of limited availability and drive up demand, thereby impacting the price.

Historical price movements

Halving events have frequently been associated with increases in the price of Bitcoin, with significant upward momentum both before and after previous halvings. For example, during the 2012 halving, Bitcoin’s price soared from about $12 to over $200 in just one year. Similarly, Bitcoin experienced a stunning recovery after its 2016 price halving, reaching a high of about $19,700 in December 2017.

Following the most recent halving event in May 2020, Bitcoin’s price surged. Starting at $8,787 during the halving, the cryptocurrency experienced a remarkable rally, eventually reaching its all-time high of nearly $69,000 in November 2021.

Market attitude and investor perception

Bitcoin halving events often generate increased market attention and hype. Expectations of lower supply and likely price increases may fuel positive feelings among investors and traders. This optimism could result in higher demand for Bitcoin as traders try to profit from the expected price gain. As a result, a Bitcoin halving can result in the self-fulfilling prophecy of rising market sentiment and demand.

It is crucial to remember that during halving occurrences, market sentiment isn’t always favorable. Market participants may also experience FUD around the potential effects of a price halving. Short-term price swings and heightened volatility may result from this conflicting sentiment.

Impact on mining economics

The Bitcoin halving event may also impact mining economics. Block rewards and transaction fees are the primary sources of income for miners, which are essential to confirming transactions and safeguarding the Bitcoin network.

The decrease in block rewards caused by a halving event directly affects miner profitability. After a halving event, miners operating with increased expenses might find it less profitable to mine Bitcoin, which could result in a drop in mining activity.

Related: ‘Don’t short when it’s dark green’: How to trade the 2024 Bitcoin halving

Network security and long-term outlook

Bitcoin’s halving may initially impact mining economics, but it also plays a critical role in preserving the network’s long-term security and stability. Miners are encouraged to continue their activities and secure the network through transaction validation due to the carefully managed decline in block rewards.

The network becomes more robust and less dependent on freshly created currencies for security as the mining industry adapts to the decreased block rewards.

Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.

Cryptocurrency

Ethereum Foundation, Whales, and Hackers: What’s Driving the ETH Sell-Off?

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TL;DR

  • Whales, hackers, and the Ethereum Foundation wallets moved over $500M in ETH through large sales and withdrawals.
  • Ethereum transfers rose to 4.6M ETH, nearing the monthly high of 5.2M recorded in July.
  • Staking inflows hit 247,900 ETH, the highest in a month, locking more supply from trading.

Large Withdrawals and Whale Activity

Ethereum (ETH) has seen heavy movement from major wallets over the past few days. On-chain data from Lookonchain shows a newly created wallet pulled 17,591 ETH, worth $81.62 million, from Kraken in just two hours. 

Over three days, two new wallets withdrew a combined 71,025 ETH, valued at $330 million, from the exchange.

One of these wallets, address 0x2A92, has withdrawn 53,434 ETH, worth $242.34 million, in two days. This includes a recent purchase of 30,069 ETH, valued at $138.46 million, during a market drop.

Major ETH Holders Offload Millions Amid Price Rally

In contrast, several separate entities have been disposing of some ETH holdings. A wallet tied to a hacker address 0x17E0 sold 4,958 ETH for $22.13 million at $4,463, securing a profit of $9.75 million. Earlier this year, the same address sold 12,282 ETH at $1,932 and later bought back part of the amount at higher prices.

A different whale sold 20,600 ETH for $96.55 million over the past two days, generating a profit of more than $26 million after holding the position for nine months. 

Meanwhile, an Ethereum Foundation-linked wallet, 0xF39d, sold 6,194 ETH worth $28.36 million in the last three days at an average price of $4,578. 

Recent sales from the same wallet included an additional 1,100 ETH and 1,695 ETH for over $12.7 million combined.

Network Activity on the Rise

CryptoQuant data shows Ethereum’s total tokens transferred have been climbing since August 9. After ranging between 1 million and 3 million ETH through late July and early August, transfers have risen to 4.6 million ETH, approaching the monthly high of 5.2 million recorded in mid-July. This increase has occurred alongside a price rally from about $3,400 to $4,600.

Ethereum (ETH) Tokens Transferred (Total)
Source: CryptoQuant

Interestingly, staking inflows generally stayed between 20,000 and 80,000 ETH per day over the past month. On August 14, inflows jumped to 247,900 ETH, the highest in the period. 

At the time, ETH was trading near $4,600. Large staking deposits reduce the amount of ETH available for immediate trading, as staked coins are locked for a set period.

Ethereum (ETH) Staking Inflow Total
Source: CryptoQuant

In the meantime, ETH trades at $4,647 with a 24-hour volume of $68.25 billion, down 2% on the day but up 19% over the week.

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Cryptocurrency

Massive DOGE Whale Activity Hints at $1 Breakout

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TL;DR

  • Whales bought two billion DOGE this week, lifting their combined holdings to 27.6 billion coins.
  • A single 900M DOGE transfer worth $208M to Binance drew attention to large exchange movements.
  • DOGE broke key resistance, with momentum building for a possible push toward the $1 price mark.

Price and Market Moves

Dogecoin (DOGE) traded at $0.23 at press time, slipping 4% over the past day but still showing a 2% gain for the week. Daily turnover came in at about $6.18 billion. 

Meanwhile, the broader crypto market saw over $1 billion in liquidations. Hotter-than-expected US Producer Price Index data pushed traders to scale back expectations of a near-term Federal Reserve rate cut. DOGE had roughly 290,500 coins liquidated during the sell-off.

On the two-week chart, analyst Trader Tardigrade notes that DOGE has cleared a downward-sloping resistance line after completing what appears to be a “wave V” in an Elliott Wave sequence. Similar setups in the past, where prolonged declines stayed within falling channels before breaking higher, have been followed by sharp rallies.

Momentum gauges are also turning up. The Stochastic RSI, which had dropped into oversold territory, is now heading higher. Previous reversals from this zone have coincided with sustained upward moves. The current formation points to a possible run that could carry DOGE past the $1 mark.

Heavy Whale Buying and Large Transfers

As reported by CryptoPotato, blockchain data shows large investors have added two billion DOGE in the past week, spending just under $500 million. That brings their holdings to about 27.6 billion coins, or 18% of the supply. The buying streak has prompted speculation within the community. 

Recently, Whale Alert flagged a 900 million DOGE transfer worth about $208 million into Binance. The tracking indicates that it originated from a wallet connected to the exchange, likely as an internal activity. The address involved holds 2.88 billion DOGE, one of the largest balances on the network.

Ali Martinez also reports that transactions above $1 million reached a one-month high, with activity building since early August and peaking as DOGE traded at $0.25.

Sentiment Building

Analyst Gordon described the current setup as “a nice bit of consolidation” before a potential breakout, adding, 

“This will be one of the first coins normies FLOCK to & the pump will be MASSIVE.”

With whale accumulation rising, high-value transfers increasing, and a bullish technical pattern in play, DOGE is positioned for a potential push toward $1 if momentum holds.

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Cryptocurrency

Ripple Price Analysis: XRP at Risk as Key Support Levels Could Trigger Sharp Drop

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XRP has recently entered a consolidation phase after a strong rally earlier this summer, with the price action now hovering around key resistance levels on both its USDT and BTC pairs. Yet, while momentum has slowed, the charts still indicate a generally bullish structure, with multiple key support levels remaining firmly in place.

Technical Analysis

By ShayanMarkets

The USDT Pair

On the XRP/USDT daily chart, the price is currently trading near the $3.10 mark, facing a strong resistance zone around $3.40. This follows a breakout above the $2.70 range in July, which has now flipped into a support area.

Both the 100-day and 200-day moving averages are also trending upward and recently formed a bullish crossover around $2.45, reinforcing the medium-term bullish sentiment. If the $3.40 resistance breaks, a push toward the critical $4.00 range becomes likely.

However, the RSI hovering near the neutral 50 level suggests a lack of strong momentum for now, meaning a short-term pullback into the $2.80 support zone is still possible.

This zone will be key for maintaining the bullish structure. Losing it could open the door for a deeper correction toward the 200-day moving average located around the $2.40 mark. Yet, as long as the price stays above the moving averages, the broader trend remains bullish.

The BTC Pair

Looking at the XRP/BTC chart, the pair has recently pulled back after hitting the 3,000 SAT resistance, with the price currently around 2,600 SAT.

This follows a clean breakout above the long-term descending channel and a successful retest of its upper boundary, which coincided with the 200-day moving average and the 2,400 SAT support zone. This confluence remains a key bullish technical factor, as holding above it could attract renewed buying pressure.

That said, RSI levels around 48 show that momentum has cooled after the sharp July rally, meaning XRP may continue ranging between 2,400 SAT and 3,000 SAT in the near term. A decisive close above 3,000 SAT would likely open the path to the 3,400 SAT zone, while losing 2,400 SAT could shift the bias back toward 2,000 SAT support. For now, the structure still favors the bulls as long as higher lows remain intact.

 

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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.

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