Another halving is coming. At this point, most people know what happened - Bitcoin's ongoing monetary inflation rate was cut in half. It will remain at the new level, around 0.9%, for about the next 4 years, at which point it will be cut in half again.

We’ve covered the technical aspects of the halving in detail before, so we won’t go into it this time, but the net effect is as follows. Completely predictable monetary inflation, trending toward zero over time, results in Bitcoin’s supply capping at just under 21 million bitcoins, reached sometime around 2140.

We’ve also covered the non-technical aspects of the topic extensively during and after the last halving and over the years, but as is tradition for all you newcomers, we’ll give a customary update of the answers to some of the most common questions we see:

• Does the halving have an impact on prices?

• Is the halving already priced in?

• How will miners be affected?

There simply isn’t enough time to cover all of this in detail in one article, so we’ll answer the second two questions extremely succinctly (suggesting some sources for those who want to go deeper) and focus on the first question—which is the most interesting one, anyway.

So is the halving already priced in? No, it can’t be. For a thorough and necessary critique of the efficient market hypothesis, we direct interested readers to Chapter 2 of the erudite Bitcoin is Venice by Alan Farrington and Sasha Meyers. As for the miners, they’ll be fine!

Halving does affect prices

But it may not have an impact in the way that seems most obvious — at least not immediately . Our view is that the halving affects price in two ways, one slowly and continuously, and one immediately and temporarily:

1. This is the “obvious” way - it will cut the sustained supply rate in half, thus alleviating the structural selling pressure on miners. It’s just that the effect is not immediate, but will have an effect over time.

2. But the more immediate truth is that each halving is effectively a giant marketing event . It instantly brings attention back to Bitcoin (and wouldn’t you know it, it’s not dead this time either), injects adrenaline into the market, but then quickly fades.

Let’s look at them in more detail.

Supply shock from halving

The “obvious” effect of the halving is its effect on supply shock. Overnight, the supply is cut in half, reducing Bitcoin’s monetary inflation by 50%. However, this is not as impactful in the short term as one might think. Most of its magic will work over time.

As a thought experiment, let’s consider the size of Bitcoin issuance relative to current ETF flows from the US. At current prices, ETFs consume about 9,000 Bitcoins per day. The mining network produces about 900 coins per day. This means that even if miners sold all the tokens they mined per day, ETF flows would still consume 10 times that amount.

After the halving it will be 20x. OK, that’s double, but that doesn’t change the fact that the only way an ETF can acquire that many tokens is through an upward repricing, causing existing holders to add dormant tokens back to the market .

But that doesn’t mean there isn’t an effect. Let’s imagine the price was 10x higher than here. At such a level, the same ETF flow would consume only 900 tokens per day, completely balancing the ongoing supply (assuming there is no other buying and selling in the market). At this price level, the impact of the halving would immediately be much greater.

In the long run, halvings could actually sustain price levels at higher and higher levels if flow is constant, or at similar levels if flow decreases at the same rate as issuance. This is definitely an important effect, but in the short term it is completely swamped by speculation and it is pointless to look for any immediate effects.

Halving as a marketing campaign

This is where the effects are felt immediately. Every time a halving approaches, the media covers it with undying fascination, giving Bitcoin a fresh look in the traditional media. At this point, people who first heard about Bitcoin during the last bull run, but thought it was dead, find out that it is actually good and often performs much better than they thought. This time around, that is certainly the case, with prices already approaching all-time highs, even before the halving.

Even though the coverage is not always technically accurate (see the screenshot above as an example), we believe this new media attention is one of the key triggers to reignite the periodic speculative manias that tend to hit Bitcoin approximately once every 4 years. At this point, momentum becomes the driving force and the classic bull run begins. The outcome seems to be the same every time: the price goes parabolic at some point, gets ahead of itself, and a brutal correction follows.

We do not recommend trying to time these cycles. We believe Bitcoin is about timing the market rather than timing the market. The fundamental investment case is clear, and a little bit of Bitcoin can go a long way.