Roughly every ten minutes, a block is produced by a miner through Proof of Work and added to the Bitcoin Blockchain. As a reward, the miner gets a certain amount of Bitcoin for every block it produces. Every 210,000 blocks, roughly 4 years, this reward is slashed in half.
In November of 2019, Icoinic posted a blog discussing the effects of a halving as well as the price action of Bitcoin around the previous two halving events of Bitcoin. You can read that blog here. Leading up to both of those events, the Bitcoin price saw a rally of 12-13 months with a total return of 434% the first time, and 238% the second time. Many speculated whether this was any indication of how the Bitcoin price would behave leading up to the third halving event. Icoinic, along with many others, believed that the price action surrounding the halving would be bullish for Bitcoin. This is not necessarily due to the instant change in inflation, but more because of the effect that would have on mass psychology.
Third halving event
The third halving event, which saw the mining reward drop to 6.25 Bitcoin per block, happened on the 11th of May 2020 around 19:30 UTC. The Bitcoin/USD price leading up to the event looks as follows:
The difference in price movement leading up to the third halving event compared to the previous halving events is clear. There was no long price rally this time. Instead, the real rally leading up to the event only lasted 61 days. During this period, the Bitcoin price rallied 128% to around $8760, which is still significant. But one must keep in mind what happened right before the start of this rally. Just 5 days before the Bitcoin price hit its low from where it started its rally, however, Bitcoin traded around $8900. The sudden price drop came as stock markets around the globe slumped due to the worsening Corona crisis.
As mentioned earlier, the previous two rallies leading up to those halving events lasted around 12-13 months. During the 12 months leading up to the third halving event, the Bitcoin price has not had any clear trend. Starting at $7217 on the 11th of May 2019, Bitcoin touched a high of $13880 and a low of $3850 after settling at $8760 during the halving event. So the return in the twelve months leading up to the event was about 21%.
The following table clearly shows the comparison between all pre-halving price rallies that have happened thus far.
So it is clear that the original thesis of a lot of people that the Bitcoin price would surge again pre-halving has not worked out exactly as expected. While there definitely was a price surge, it was short-lived and most likely a simple recovery of the earlier dump caused by the effects of the Coronavirus crisis on global markets. It is difficult to say just how the price action would have been without this crisis. Still, speculation regarding a post-halving rally continues. Thus far, the Bitcoin price has risen 11% since the halving event to above $9700, so the bullish trend does seem to continue.