How Will Bitcoin Halving Affect ETH & Altcoin Prices?

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Bitcoin’s (BTC) fourth halving event is upon us. On April 20, 2024, Bitcoin will see its block emissions cut by half from 6.25 BTC per block to 3.125 BTC per block, reinforcing Bitcoin’s status as an inflation-resistant currency and a store-of-value asset.

Halving events of the past have proved to be catalyst events that spurred bitcoin prices to hit new record highs. But what are the effects of Bitcoin halving on Ether (ETH) and other altcoins?

In this article, we review halving-related historical crypto market performance and decipher how the crypto market will react to the upcoming Bitcoin halving.

Key Takeaways

  • Attention is an important commodity that Bitcoin halving events produce for the entire crypto industry.
  • Crypto expert Shiven Moodley pointed out that the institutionalization of crypto markets could result in a different post-halving market reaction.
  • The Bitcoin DeFi sector could benefit most from the positive ripple effects of Bitcoin’s fourth halving event.
  • Spot ETH ETF news in the US will be a more significant catalyst for ETH prices.

How Bitcoin Halving Affects Crypto Markets

Although there is no direct relationship between halving events and altcoin performance, Bitcoin’s influence and close price correlation with the broader crypto market makes halving events a significant occasion for the entire crypto industry.

An important commodity that Bitcoin halving events produce is attention. In the past, BTC’s tendency to scale new record highs following halving events has attracted the attention of mainstream media and crypto outsiders.

While learning about Bitcoin, curious minds are exposed to the world of altcoins, and many fall down the crypto rabbit hole.

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Michael Zhao, crypto researcher at Grayscale Investment, said in a research note:

“Historically, the beginning of crypto bull markets has often been marked by a surge in Bitcoin’s ‘dominance,’ a measure of Bitcoin’s market value relative to the total cryptocurrency market. This trend emphasizes Bitcoin’s role as a leading indicator for the broader crypto market.”

Bitcoin Market Cap vs. Crypto Market Cap ex-BTC.
Bitcoin Market Cap vs. Crypto Market Cap ex-BTC. Source: Grayscale, TradingView

Zhao added:

“Typically, a rally in Bitcoin precedes wider gains across altcoins. Investors, after being buoyed by their Bitcoin profits, may venture into higher-risk cryptocurrencies in search of greater returns. This dynamic was observable during the 2021-2022 bull run, a period where Bitcoin’s gains were swiftly followed by a significant uptick in altcoin valuations.”

However, Shiven Moodley, COO & Macro Strategist of 80eight Group, told Techopedia that the increasing institutionalization of crypto markets could result in divergent post-halving market reactions compared to previous cycles. He said:

“Due to the level of institutional players currently in the market, I don’t think it (upcoming Bitcoin halving event) will change the long-run perceptions of the overall market. There is much hype around BTC to rally after the halving. Still, if we pull back the curtain, retail psychology has minimal power compared to institutional holders now, while regulators control the narrative.

 

“It’s been so exciting seeing the market psychology change. On-chain analytics have been entirely different from how people perceive the halving to look. It just shows how institutional are shaping the market now.”

Historical ETH Price Analysis After Halving Events

In this section, we dissect how ETH prices have reacted to Bitcoin halving events of the past:

Bitcoin’s Second Halving: July 2016

ETH did not exist during Bitcoin’s first halving event, which occurred in November 2012. During Bitcoin’s second halving event in July 2016, the Ethereum blockchain was barely a year old. At the time, ETH was trading at a price range of $12 to $15.

Historical data showed Bitcoin’s second halving event did not result in an immediate surge in ETH price. In fact, ETH prices fell to a low of $5.8 over the next six months, while BTC prices rose consistently during the same period.

The two crypto assets peaked about 18 months after the halving event, with BTC hitting a then-record high of over $19,000 in December 2017 and ETH hitting a peak of over $1,400 a month later in January 2017.

The movement of BTC and ETH prices in the months after Bitcoin’s second halving event backs a popular market theory that BTC outperforms altcoins in the early phases of crypto bull runs.

BTC/USD and ETH/USD historical data from Coinbase on TradingView
BTC/USD and ETH/USD historical data from Coinbase on TradingView

Bitcoin’s Third Halving: May 2020

During Bitcoin’s third halving event in May 2020, ETH was trading at a price range of $175 to $250. This time, ETH’s price performance correlated more with BTC’s movement. Within a year, both ETH and BTC had scaled new record highs by May 2021.

The crypto market powered through a sharp selloff sparked by China’s ban on crypto trading and mining activities in May 2021, to hit new peaks in November 2021.

Over the years, BTC’s price correlation with ETH has stabilized to a range of +0.9 to +0.6, indicating that the two assets tend to move in sync. Back in 2016, the BTC-ETH correlation hit a low of -0.5.

Pearson correlation coefficient for BTC and ETH.
Pearson correlation coefficient for BTC and ETH. Source: CoinMetrics

Economic Forces at Play in 2024

It is important to note that we cannot solely rely on historical data in our attempt to predict how ETH and altcoins will react to the 2024 Bitcoin halving event. Every market cycle is different, and there are undercurrents at play that we have to consider when analyzing market data.

For example, the initial coin offering (ICO) boom that started in 2017 was the primary factor that led to ETH price surge six months after Bitcoin’s second halving event. Similarly, Bitcoin’s third halving event in 2020 occurred during an unprecedented period when interest rates were cut to zero following the onset of the COVID-19 pandemic.

While Bitcoin halving’s scarcity narrative is compelling enough to move crypto markets, a broader economic context should also be considered when analyzing crypto markets.

So, what are the economic events that we have to keep in mind for 2024?

  1. Macroeconomics
    Crypto prices corrected sharply in mid-April 2024 after hotter-than-expected US inflation data curtailed hopes of sharp interest rate cuts by the US Federal Reserve. Going forward, inflation data and interest rate outlook will be key factors on how BTC and altcoins will perform in 2024.
  2. Geopolitical Tensions
    Ongoing wars in the Middle East and Europe could fuel demand for Bitcoin as a hedge against geopolitical events. ETH and altcoins could benefit from this narrative too, as cryptocurrencies are seen as global and decentralized assets.
  3. ETH ETF
    The approval of spot ETH ETFs in the US will be the biggest market catalyst for ETH prices in 2024. May 23, 2024, is marked as the deadline for the US to make its decision on spot ETH ETF applications.
  4. Regulations
    Crypto regulations will continue to influence Bitcoin and altcoin prices in 2024. Most recently, the SEC filed a lawsuit against the leading Ethereum decentralized exchange (DEX) Uniswap.

Key Beneficiary of Bitcoin Halving: Bitcoin DeFi Sector

In this section, we highlight a certain crypto sector that may benefit from the positive ripple effects of Bitcoin’s fourth halving event.

“Bitcoin DeFi” is a niche sector of crypto projects and smart contract platforms that aim to bring Ethereum-like decentralized finance (DeFi) activity to Bitcoin.

Unlike other layer one blockchains, Bitcoin does not support smart contracts which limits the potential of hosting a DeFi ecosystem.

Smart contract blockchains like Stacks (STX) and CoreDAO (CORE) are implementing unique designs to bring DEXes, crypto lending, staking, and cross-chain integrations to Bitcoin.

Furthermore, the release of the Ordinals theory in December 2022 has allowed developers to create fungible and non-fungible tokens (NFT) on the Bitcoin chain.

The Bottom Line

Bitcoin’s fourth halving event is a celebratory occasion for the crypto community. Too many times, critics have been quick to write crypto off. But the industry has only come back stronger.

Bitcoin’s fourth halving celebrates the resilience of the crypto industry and the innovations we have seen along the way.

Always do your own research before investing. Cryptocurrencies are high-risk assets. The information in this article does not constitute investment advice and is meant for informational purposes only.

FAQs

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Mensholong Lepcha
Crypto & Blockchain Writer
Mensholong Lepcha
Crypto & Blockchain Writer

Mensholong is an experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has previously contributed news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He started his writing career at Reuters in 2017, covering global equity markets. In his free time, Mensholong loves watching football, finding new music, and buying BTC and ETH for his crypto portfolio.