I. Introduction

Bitcoin and Its Unique Properties

Bitcoin, as the first and most famous cryptocurrency, has attracted global attention since its establishment by the mysterious figure Satoshi Nakamoto in 2009. The core feature of Bitcoin is its decentralized nature, not relying on any central authority but recording transactions through a public ledger called the blockchain. This design not only ensures the transparency of the system but also enhances security, as modifying any recorded information requires the consent of the majority of the network's computing power. In addition, Bitcoin's global nature makes it immune to the direct influence of specific countries or policies, making it a unique international currency.

Bitcoin Halving

Bitcoin halving refers to the event where the rewards for generating bitcoins in the Bitcoin network are halved every four years. This is a pre-set rule in the Bitcoin protocol aimed at controlling the supply of Bitcoin, mimicking the scarcity of gold. Every 210,000 blocks produced, the amount of new bitcoins miners receive is halved. Starting from the initial reward of 50 bitcoins per block, it has decreased to 3.125 bitcoins in 2024. This periodic reduction in supply theoretically pushes prices higher under unchanged demand, thereby significantly impacting the market.

II. Analysis of Bitcoin Halving Mechanism

Definition and Historical Review of Bitcoin Halving

Bitcoin halving refers to the event in the Bitcoin network where the rewards for new blocks are reduced by half every 210,000 blocks, approximately every four years. This is a core part of the Bitcoin algorithm, aiming to control inflation and gradually slow down the mining speed to mimic the extraction rate of scarce resources such as gold. Since the operation of the Bitcoin network in 2009, the block reward has decreased from the initial 50 bitcoins per block to 3.125 bitcoins in 2024. After each halving, mining rewards decrease by 50%, directly affecting miners' earnings and the entire Bitcoin economy.

Role of Miners and Their Response to Halving

In the Bitcoin network, miners play a crucial role in maintaining blockchain security and processing transactions. Whenever halving occurs, the reduced rewards may force many less efficient mining operations to exit the market due to decreased profits. In response to halving, miners typically seek more efficient mining equipment and lower-cost power supplies to maintain competitiveness and profitability.

Analysis of the Impact of Halving on Mining Economics

Halving events typically lead to a significant reassessment of the relationship between mining costs and market value. The profitability of mining is directly affected because reduced rewards mean that the same mining effort will generate less income if the Bitcoin price does not rise. This prompts mining companies to evaluate their operational efficiency, invest in more advanced technology, or seek cost-effective energy solutions globally.

Adjustment of Miner Strategies, such as Equipment Upgrades and Geographic Distribution Changes

To adapt to the challenges brought by halving, miners typically employ various strategies, including hardware upgrades, optimization of mining algorithms, and relocation to regions with cheaper electricity. For example, many miners have moved from China to Central Asia, Northern Europe, and even North America to take advantage of lower local energy costs and more stable policy environments.

III. Impact of Halving on Bitcoin Supply

Halving directly affects the speed of new Bitcoin supply, and in the long term, this reduced supply may drive prices up under stable demand. In this way, halving events affect Bitcoin's economic model, making it more like "digital gold."

Source: https://www.tradingview.com/chart/BTCUSD/zDs32rdu-BTC-Halving-Cycle-Top-Analysis-2021-2022/

Bitcoin Price Performance Before and After Halving

• 2012 Halving: Bitcoin price surged from $12 to $1,300, an increase of over 100 times, taking 357 days.
• 2016 Halving: Bitcoin price surged from $650 to $18,000, an increase of over 27 times, taking 511 days.
• 2020 Halving: Bitcoin price surged from $9,000 to $69,000, an increase of over 7 times, taking 546 days.

Short-term fluctuations: After the past three halvings, Bitcoin prices fluctuated within a month after halving, but then experienced significant increases over the following year. This phenomenon indicates that the market needs time to digest the impact of halving, but will ultimately respond to the reduced supply brought about by halving.

Long-term increase: Despite short-term fluctuations, historical data shows that Bitcoin halving leads to significant long-term increases. This is because the halving mechanism continues to reduce Bitcoin's supply, and with a total supply of only 21 million bitcoins, Bitcoin becomes a scarce asset.

Bitcoin Price Performance Before and After Halving

• First Halving in 2012: One month after halving, Bitcoin price increased by 9%. Over the following year, Bitcoin price soared by 8,839%.
• Second Halving in 2016: One month after halving, Bitcoin price decreased by 9%. Over the following year, Bitcoin price soared by 285%.
• Third Halving in 2020: One month after halving, Bitcoin price increased by 6%. Over the following year, Bitcoin price soared by 548%.

Miner selling pressure: Miners may sell Bitcoin after halving, which could temporarily pressure prices. However, it is important to consider that miner selling behavior is often influenced by market demand. If market demand is strong, miner selling behavior may be absorbed without significantly affecting prices.

Major Bitcoin Events and Price Impact (2018 – 2024)

Launch of BTC Spot ETF

In January 2024, the first Bitcoin spot ETF was listed in the United States, marking traditional financial markets' recognition of digital assets. This will further drive institutional investors into the cryptocurrency market, increase Bitcoin's liquidity and market depth, and thus have a positive impact on prices.

IV. Advantages of Bitcoin as an Investment Asset

Comparison of Bitcoin with Traditional Assets (e.g., Gold, Stocks)

Bitcoin is often referred to as "digital gold," possessing similar non-governmental control and scarcity characteristics as gold, but it demonstrates distinct advantages over traditional assets such as gold and stocks. Firstly, Bitcoin's global nature and ease of trading provide advantages beyond geographical limitations. Compared to gold, Bitcoin's storage and transfer are more convenient and cost-effective. Secondly, unlike the stock market, the Bitcoin market operates almost around the clock, offering higher liquidity and trading flexibility. Additionally, Bitcoin's price is not directly influenced by company performance or economic policies, providing investors with a potential hedge. In times of increased global economic uncertainty, Bitcoin may exhibit characteristics that are asynchronous with traditional markets.

As shown in the figure, over the past year, the cumulative return of Bitcoin has shown a significant difference compared to other traditional assets. The figure clearly demonstrates the performance of Bitcoin relative to gold, the Dow Jones Industrial Average, the Nasdaq Composite Index, the S&P 500 Index, and the S&P 500 Bond Index. It can be seen that Bitcoin experienced a period of rapid growth in October 2023, with its cumulative return rapidly surpassing other assets in a short period of time.

This rapid growth highlights the potential and volatility of Bitcoin as an investment tool, while the growth of traditional assets such as stock and bond indices remains relatively stable. Additionally, gold, as a traditional safe-haven asset, has shown moderate growth and volatility, consistent with the performance of stock and bond indices. When analyzing the returns of these different assets, the uniqueness and high volatility of Bitcoin provide a different path for investors seeking non-traditional growth opportunities.

As shown in the figure, there is a significant correlation between the price of Bitcoin and its 30-day rolling volatility. In most time periods, it can be observed that the increase in Bitcoin price is accompanied by an increase in volatility. Especially in early 2024 as marked in the figure, the price of Bitcoin reached a peak, and at the same time, volatility also significantly increased, indicating that the substantial price fluctuations and increased investor uncertainty have heightened market volatility. However, in March 2024, Bitcoin prices experienced a sharp decline, which is also reflected in the sharp increase in volatility, indicating that volatility is an important indicator of market uncertainty and changes in investor sentiment during rapid price movements.

In the cryptocurrency market, volatility serves as a measure of risk and is closely linked to price. This should be taken into consideration when making asset allocations.

Market Acceptance and Growth Potential of Bitcoin

In recent years, the market acceptance of Bitcoin has significantly increased, with more and more financial institutions and technology companies beginning to support Bitcoin trading or accept Bitcoin as a form of payment. The participation of international payment giants such as PayPal and Square in the early years has made Bitcoin more mainstream, providing convenient investment and usage avenues for ordinary investors. Furthermore, with the development of blockchain technology and the gradual improvement of digital currency regulations, the long-term growth potential of Bitcoin is widely recognized. As a borderless currency, Bitcoin's potential role in the global economy is gradually expanding, and its growth potential has been acknowledged by many investors.

As of April 6, 2024, several well-known ETFs and listed companies hold a significant amount of Bitcoin, reflecting the market's acceptance and optimism about its growth potential. Large asset management institutions such as Grayscale, BlackRock, and Fidelity hold tens of thousands of units of Bitcoin spot ETFs, with total assets under management exceeding $50 billion. This data not only demonstrates the positive attitude of institutional investors towards Bitcoin investment but also implies that Bitcoin, as an emerging asset class, is gaining recognition from an increasing number of participants in the traditional financial markets.

Meanwhile, listed companies such as MicroStrategy, Galaxy Digital Holdings, and Marathon Digital Holdings also hold a considerable amount of Bitcoin, totaling over 250,000 units, with a value exceeding $17 billion. The participation of multinational technology companies such as Tesla further indicates the affirmation and expectation of Bitcoin's future value in the mainstream business sector.

Overall, the large-scale holding of Bitcoin by both the asset management industry and major listed companies highlights the market's deep confidence in it and the potential importance of Bitcoin as an investment tool and store of value in global asset allocation. This trend indicates the increasing maturity of the cryptocurrency market and broader market acceptance in the future.

V. Future Outlook and Investment Opportunities

Diversification Effect of Bitcoin Investment in Traditional Investment Portfolios

Incorporating Bitcoin into traditional investment portfolios can provide significant diversification benefits. Due to the low correlation between Bitcoin and traditional financial assets, it provides a means of risk diversification for investment portfolios. In times of global economic instability or inflation, Bitcoin even exhibits characteristics of a safe-haven asset. By analyzing the performance of Bitcoin under different market conditions, investors can better understand how to utilize this digital asset to optimize the risk-return ratio of their investment portfolios.

This figure reveals the low correlation between Bitcoin and traditional assets. Apart from maintaining a relatively high correlation with Ethereum, BTC generally exhibits low correlation with mainstream assets such as the Dow Jones, S&P 500, Nasdaq, and Hang Seng indices. This low correlation demonstrates the advantage of BTC as a diversification tool in an asset portfolio, helping to diversify the systematic risk of the portfolio. Especially during periods of turmoil in traditional markets or facing downward pressure, this characteristic of BTC may provide investors with a certain degree of protection, thereby reducing the overall portfolio volatility. Therefore, the inclusion of BTC can be seen as a strategic allocation aimed at improving the risk-adjusted return of the investment portfolio.

This figure depicts the standardized cumulative return comparison of a traditional 60/40 investment portfolio (60% stocks, 40% bonds) and portfolios with different proportions of Bitcoin allocation, as well as the trend of Bitcoin prices. The proportions of 60/35/5, 55/35/10, and 50/35/15 represent the allocation of stocks, bonds, and Bitcoin in the portfolio. As the proportion of Bitcoin increases, the volatility of the portfolio's returns also increases.

It can be observed that during periods of Bitcoin price increases, portfolios containing Bitcoin allocation significantly outperform the traditional 60/40 portfolio. Especially after 2020, with the significant increase in Bitcoin prices, portfolios containing Bitcoin have shown stronger growth potential.

However, this also comes with higher volatility, especially during peak and decline periods of Bitcoin prices. This indicates that while including Bitcoin in the portfolio may increase returns, it also increases the portfolio's exposure to risk.

This figure illustrates the rolling 12-month Sharpe ratios of Bitcoin compared to various assets. The Sharpe ratio measures the excess return per unit of risk, with a higher Sharpe ratio indicating a higher risk-adjusted return.

From the figure, it can be seen that the Sharpe ratio of Bitcoin is significantly higher than other assets during certain periods, indicating the highest excess return per unit of risk. Especially in 2017 and 2021, the Sharpe ratio of Bitcoin peaked, reflecting its excellent ratio of investment return to risk during these periods. However, it can also be observed that the Sharpe ratio of Bitcoin exhibits significant volatility, corresponding to the sharp fluctuations in its price.

In contrast, traditional stock indices such as the S&P 500 and Nasdaq, while having lower Sharpe ratios, exhibit lower volatility, reflecting more stable risk-adjusted return performance.

Disclaimer: The information provided in this article is for reference only and does not constitute any investment or financial advice. The content is based on current information and may change in the future, and the accuracy or completeness of the content is not guaranteed. Before making any investment decisions, please consult your financial advisor to ensure it aligns with your personal financial situation and risk tolerance.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。