Bitcoin has been around since 2009, and so far, we have had two Bitcoin halving events, leading up to the one that just happened yesterday. Let’s analyze what happened the last two times the block reward was halved.

Bitcoin’s proponents hail it as the soundest form of digital money because of its strictly regulated supply schedule. The issuance policy is all but set in stone, and the total supply is mathematically limited to 21 million bitcoins. To get to that 21 million bitcoins, each block produced by miners results in a reward in Bitcoin that goes to the miner who produced the block. While Bitcoin started by rewarding miners 50 Bitcoin in the beginning, every 210,000 blocks, a hard-coded event referred to as a halving event reduces the number of Bitcoin reward by half.

The First Halving

Bitcoin’s first halving event happened on November 28, 2012, at block 210,000. This event reduced the block reward from 50 bitcoins to 25 bitcoins, and assuming approximately 144 blocks mined per day (10 minute block time), daily issuance dropped from 7,200 to 3,600 bitcoins.

A year earlier, in November of 2011, a bull market began and ended over a year after the halving event, in December of 2013. This period saw Bitcoin’s price increase over 500x. And in the four weeks leading up to the first halving event, Bitcoin appreciated 34% going from approximately $9.50 to $12.75. Having said that, prices rose only 6% from $12.75 to $13.50 in the two weeks after and remained around that price for the following five weeks.

The Second Halving

The second halving event of Bitcoin’s history took place on July 9, 2016, at block 420,000. This time, the block reward was reduced from 25 bitcoins to the current 12.5 bitcoins. And if we assume the same block rate, daily issuance went from 3,600 bitcoins to the current rate, which is 1,800 bitcoins per day.

What was notable about this halving event, was that it only took approximately 3.6 years, which was short of the widely expected 4 years that it was supposed to take. This unusual situation can be explained by the fact that mining growth outpaced the network’s mining difficulty adjustment.

In February 2013, application-specific integrated circuits (ASICs), the fourth generation of Bitcoin mining equipment, were introduced. These high-performance chips were explicitly designed for mining purposes and displaced other types of mining processors like GPUs. And while the mining difficulty is automatically adjusted every 2,016 blocks to maintain a block rate of 10 minutes with mining advancements, the algorithm was unable to account for the nonlinear growth in mining efficiency due to the immense technological advancement represented by the development of ASICs.

Similarly to the first halving, where a bull trend began one year before the event, Bitcoin experienced a bull run beginning nine months prior to the second halving. Bitcoin’s price increased 90x from that time to its peak in the infamous bull run of 2017, when Bitcoin flirted with a price of $20,000.

Conclusion on Bitcoin Halving Events

The last two halving events happened in the middle of two-year uptrends in Bitcoin price. These bull runs were both followed by ~80% drawdowns in the year to year and a half period after. Bitcoin has almost tripled since it bottomed out at ~$3200, so there is a chance history will repeat itself with this halving event.

Interestingly, the third halving, which just passed on May 11, 2020, will reduce the annual supply growth rate from 3.7% to 1.8%, marking the first time in its history that Bitcoin’s supply growth rate will fall below the 2% inflation rate targeted by the majority of central banks.