Most people do this. They celebrate the Bitcoin halving. Few people stop to think about what that means. What impact the halving has on Bitcoin itself. Every few years something "interesting" happens on the Bitcoin blockchain. It's called the Bitcoin halving and suddenly all the Twitter prophets are out trying to divine an imminent price surge based on this most recent development. This causes a certain inevitable question to be asked.

"Is Bitcoin about to go up?"

The bitcoin halving is an important event

but it is by no means a guarantee

it will not cause a bull market but it also will not make you rich just because it happened. To explain why requires an understanding of what changes, and more importantly, what doesn't change.

So, What Exactly Is the Bitcoin Halving?

Bitcoin has a built-in supply schedule.

Every 210,000 Bitcoins, which is about every four years, the amount of Bitcoin that can be mined is cut in half.

This is done to deliberately reduce inflation over time.

Unlike fiat currencies, whose supply is determined by central banks, Bitcoin’s algorithm contains a rule that automatically reduces the rate of new supply every 210,000 Bitcoins.

Eventually, the supply of Bitcoin will taper off and approach zero.

Noteworthy, this schedule is engraved in code and cannot be changed by any human discretion.

There is no way to print more money overnight, as there may be in central banks.

What Does the Halving Actually Do?

The easiest way to understand it is to imagine a bakery.

Let’s say your local bakery sells 100 cakes per day. Suddenly, the owner decides that starting from the next month, only 50 new cakes will be produced.

If people still want to buy 100 cakes, than clearly, each cake will start becoming more expensive.

Now, how does it relate to Bitcoin? Well, it doesn’t have much connection, apart from the fact that the supply of newly printed Bitcoins is reduced every 210,000 coins. This is know as the ‘halving’.

Simply put,

the Bitcoin halving reduces:

– amount of new Bitcoins entering the economy,

– makes Bitcoin scarce,

– increases competitiveness among miners,

– but most importantly – has no direct connection with price changes.

And now, let’s talk about the biggest misconception about scarcity and supply-demand relationship that many people make.

The Part Everyone Seems to Forget: Demand

Let’s say there is a concert that you want to organize. You have only 10 tickets left. Sounds like scarcity, right? But what if no one wants to buy them? Would these 10 tickets become worth 10 million dollars instead?

Of course not.

Unless there is scarcity AND demand, there is no price change.

This is the biggest mistake people make when talking about the Bitcoin halving. They fail to acknowledge that demand is just as important as scarcity. And in case of demand being lower than usual, than scarcity will fail to impact the price.

So, in summary,

saying that “Bitcoin will rise because of the halving” is a huge oversimplification.

Why Do People Connect Halvings With Bull Markets?

Study Bitcoin’s history, and you will notice something peculiar.

Every previous halving preceded a significant price increase.

This observation has given rise to the prevalent narrative:

“Halving leads to shortages leading to higher prices.”

While this is common sense, relying solely on this assumption can be deceptive, as not all events coincide in the same context. Although Bitcoin’s price skyrocketed during previous halving periods, remember that each cycle occurred within a different macroeconomic environment. Interest rates, liquidity, regulation, institutional adoption, investor behavior, technological innovations, and even geopolitical events have changed drastically since Bitcoin’s early years. The only constant factor that determines Bitcoin’s price cycle is a reliable and recurring BTC supply reduction called “halving.”

The Halving Doesn't Control the Market

This is possibly the most crucial point.

The Bitcoin system, itself, is unaware that the stock market is crashing.

It doesn't care if the interest rates make their usual, periodic adjustments.

It doesn't read the news.

It doesn't know whether the markets are bullish or bearish.

It only does what it's programmed to do.

This is why Bitcoin's volatility is so difficult to predict--because, despite the influence of the market forces, it still obeys a strict set of rules. The rules of supply and demand--the fundamental forces of economics--still apply. And while the supply of Bitcoin is controlled by this meticulous algorithm, demand is controlled by humans.

So, Is the Halving Overrated?

Not exactly.

The halving is one of the most crucial aspects of the design by which Bitcoin is adopted today.

It showcases Bitcoin's money supply predictability.

No one is ever surprised about the number of new bitcoins entering circulation yearly.

That is an advantage.

However, attaching any degree of guaranteed wealth to it is where people get it wrong.

The halving is an interesting phenomenon, but not a financial certainty.

What Should Investors Actually Pay Attention To?

Instead of getting hung up on a particular issue, think about the whole picture.

Ask yourself:

is adoption rising?

is demand increasing?

how is liquidity changing globally?

what's going on with regulations?

how are investors acting?

what's happening overall in the economy?

and last but not least: do I really understand what I am investing in?

These questions are much more pertinent than simply asking "when is the next bull run"?

The Bigger Lesson

There is something bigger to the Bitcoin halving.

It shows us that certainty and predictability are not the same.

We can be certain when the supply will be reduced,

but we cannot be certain how millions of people will act on it.

This is the big difference between a programmed economy and human nature.

Bitcoin is programmed, yes, but humans are fickle.

They act on their greed,

their fear,

their FOMO,

their panic.

And this is why no event can dictate with 100% certainty what will happen next.

Final Though

The Bitcoin halving is not a magical event.

It will not create demand.

It will not create a bull market.

It will not turn bad investments into profitable ones.

All it does is produce new bitcoins at a pace that can be understood, predicted, and verified.

After that, it's up to the rest of us.

Rather than cheering on the next halving, perhaps we should spend time learning how and why it happens.

We should understand supply and demand.

We should look past the hype.

We should remember that while the Bitcoin protocol can control supply,

it cannot control your spending habits.