Bitcoin has halved: what to anticipate before the next halving in 2028?

The rewards paid to miners, who are responsible for maintaining the bitcoin network, have just fallen to 3.125 btc. This mechanism, which founder Satoshi Nakamoto built into the protocol to preserve scarcity, has become known as the halving among the crypto community. Investors keenly anticipate it because of the impact on bitcoin’s price.

Halvings occur after 210,000 blocks are mined, which takes roughly four years, with the last one expected to take place in 2140. A lot can happen in that timespan, especially given the rapidly evolving nature of the crypto markets, so this article explores some of the factors that could affect bitcoin’s trajectory ahead of the next event in 2028.

One way to predict what might occur in the future is to look at the past, so crypto investors can learn from how bitcoin’s price has reacted to previous events. 

The first halving took place in November 2012, when awareness about bitcoin was negligible. It started the year at $5 but had doubled to $10 when the halving occurred. The price surged in 2013, hitting a record high of $163 in April and surpassing $1,000 for the first time by the end of the year.   

The second halving happened in July 2016 during the Initial Coin Offering bubble, crypto’s version of an IPO. Bitcoin had started trending upwards in October 2015 and was worth over $600 at the time of the event. It continued to rise steadily until April 2017, when it surged again, peaking at $19,000 in December.

The third halving occurred in May 2020. Bitcoin had gained much wider traction, but it coincided with the early stages of the Covid pandemic when economies started to shut down. The price dipped to around $5,000 in March before recovering to nearly $10,000 in May. A familiar pattern emerged after the event- bitcoin climbed until October and then rallied past $61,000 in March 2021.

In mid- March 2024, bitcoin reached a new all-time high of $73,000. Daily volume averaged roughly $60 billion- its highest level since a year earlier- indicating significant support for the latest bull market.

One of the strongest catalysts dates back to the summer of 2023, when 11 providers, including some of the world’s largest financial institutions, submitted applications to launch spot bitcoin exchange-traded funds (ETFs) in the US. After the Securities and Exchange Commission (SEC) approved the ETFs in January 2024, inflows hit nearly $2 billion in the first three days of trading.  

The narrative around bitcoin as digital gold also gathered steam. Global geopolitical uncertainty has risen in the last couple of years as wars broke out in Europe and the Middle East. Meanwhile, inflation soared in Western economies, triggered by monetary policies implemented by central banks during the pandemic and disruption to supply chains. Investors tend to respond to these conditions by shifting their assets to gold, and bitcoin benefited because it shares many of the characteristics of a store of value.

Bitcoin has also started to appear on corporate balance sheets, most famously software developer MicroStrategy, which held nearly $6 billion at the start of February 2024.

“Global macroeconomic, monetary, and digital evolutions have converged, requiring all forward-thinking corporations to consider alternative assets on their balance sheet,” MicroStrategy President Phong Le told Deloitte previously. “The ecosystem and the regulatory environment for digital assets, especially bitcoin, have matured to the point that this strategy is becoming approachable and mainstream.”

Tesla is another high profile holder of bitcoin, although at a much lower level ($184 million), while Reddit’s recent filing to go public revealed it has a small amount on its balance sheet. 

Satoshi prioritised security and decentralisation ahead of scalability when designing the bitcoin protocol. Growing demand has led to network congestion, increasing transaction fees (which jumped above $37 after Ordinals launched at the end of 2023) and wait times.

However, recent developments focused on improving scalability have addressed this congestion and enhanced bitcoin’s use case as a medium of exchange.

Blockchains have different layers. Layer 1s are the core protocols, such as the original bitcoin network and Ethereum. Layer 2s (L2s) are built on top of layer 1s and aim to overcome their weaknesses and maximise their strengths.

The main function of bitcoin L2s is to increase the network’s capacity to process transactions. But they also improve its functionality by allowing developers to build tools on the core protocol, similar to Ethereum, paving the way for smart contracts and decentralised finance apps.

The Lightning Network is one of bitcoin’s most high-profile L2s. Launched in 2018, it sets up payment channels between two parties and processes their transactions before settling them later on the core protocol. Rootstock is another bitcoin L2 that pioneered the use of smart contracts and is compatible with the Ethereum Virtual Machine, the software that runs the Ethereum network.  

How regulators treat bitcoin will impact adoption in the coming years.

Currently, global regulation is inconsistent, with national and regional authorities implementing separate regimes to prevent money laundering and supervise crypto businesses. But various bodies are working to address this situation. For instance, in February 2023, the Financial Action Task Force (FATF), which is responsible for combating money laundering and terrorist financing, agreed on a roadmap to implement a global crypto standard. The FATF previously published guidelines specifically targeting the sector in 2019 (updated in 2021), but few countries have successfully implemented them to date.

Another trend that could influence the future of crypto is the regulatory uncertainty in the US. Several domestic authorities want a say- the SEC, Commodities Futures Trading Commission, Office of the Comptroller of the Currency and Federal Reserve - creating complexity for crypto operators in the world’s largest economy. But greater institutional demand, as demonstrated by the SEC’s approval of spot bitcoin ETFs, could improve clarity.   

Now the halving is out of the way, attention turns to the next event in 2028. To anticipate what might happen to bitcoin’s price in the intervening years, investors may want to analyse patterns that have emerged pre and post previous halvings. Current market conditions could serve as a leading indicator, while developments in the infrastructure layer underpinning bitcoin and the regulatory environment are also likely to influence price. Whatever happens, investors should stay informed and track the latest trends.