How does the reduction of mining rewards affect the evolution of Bitcoin: A comprehensive analysis of the scarcity economy

Reward Reduction: The Heart of Bitcoin’s Monetary Policy

Unlike traditional monetary systems where central banks control the money supply at their discretion, Bitcoin operates based on a strict algorithmic program. That is why every 210,000 blocks (approximately every four years) the system automatically halves the number of new bitcoins entering the market. This phenomenon is called a reward reduction or halving.

The mechanism, embedded by the anonymous creator Satoshi Nakamoto, serves to control inflation and ensure scarcity — a key feature that grants Bitcoin the status of a digital asset with a limited supply. As of 2026, approximately 19.97 million bitcoins have been mined out of the maximum possible 21 million, leaving a tiny amount for mining over the next few decades.

Historical Halvings: Four Cycles of Transformation

First cycle (2012): The beginning of supply control

The first halving occurred on November 28, 2012, at block height 210,000. The reward decreased from 50 to 25 Bitcoin per block, when the coin’s price was approximately $12. The following year saw exponential growth — the price reached around $130, representing a 1,083% increase. Many researchers point to this emission reduction as the factor that ignited the first significant bull market in cryptocurrency history.

Second cycle (2016): Institutional attention

On July 9, 2016, the second halving reduced the block reward from 25 to 12.5 BTC. At that time, Bitcoin was worth about $650. Over the next six months, the price rose to $900, and within a year, the system reached a new all-time high of around $20 thousand. This period marked the shift from purely marginal speculation to more serious financial interest.

Third cycle (2020): Crisis as a catalyst

On May 11, 2020, amid global economic instability, the third halving took place. The reward decreased from 12.5 to 6.25 BTC, with Bitcoin trading at approximately $8,821. Unexpectedly, the economic turbulence did not halt the price ascent — within six months, Bitcoin reached $15,700, and after 18 months, it hit the $69 thousand mark. This period demonstrated how Bitcoin began functioning as a store of value during times of macroeconomic instability.

Fourth cycle (2024): Mature market

On April 20, 2024, the fourth reward reduction occurred — from 6.25 to 3.125 BTC per block, when Bitcoin was approximately $63,652. Unlike previous events, this halving took place in the context of a significantly more developed market with active institutional participation and recent approval of spot ETFs in the US.

Scarcity as a Value Driver: The Mathematics of Limited Supply

Reward reductions directly impact the supply and demand dynamics of Bitcoin. With each halving, the number of newly created coins entering the market daily sharply decreases. For example, after the 2024 halving, the daily issuance dropped from 900 to 450 bitcoins.

Economists often refer to this phenomenon as a “supply shock.” When the flow of new Bitcoin halves and demand remains stable or increases (due to institutional adoption, regulatory clarity, or macroeconomic factors), simple mathematics suggests that limited supply with steady or rising demand should lead to price appreciation.

This principle can also be observed over the longer term. The last Bitcoin is projected to be mined around 2140, after which no new coins will be issued. By that time, miners will no longer receive block rewards, relying solely on transaction fees as compensation for network security.

Impact on the Mining Ecosystem

Reward reductions pose significant challenges for Bitcoin miners. When the block reward drops by 50%, the main source of income for operators decreases accordingly. For those operating with expensive electricity or outdated equipment, this may mean transitioning from profitability to losses.

Historically, after each halving, there is a wave of shutdowns of less efficient operations. This temporarily reduces the network’s hash rate (total computational power), but over time, as Bitcoin’s price increases, mining becomes profitable again, and larger players expand their operations.

In the long run, this natural selection mechanism encourages technological innovation. Miners seek more energy-efficient hardware, move to regions with cheaper electricity, and the industry as a whole evolves toward greater efficiency.

Price Cycle: Correlation or Causation?

Analytical data indicates a clear link between reward halvings and Bitcoin price growth:

• 365 days after the 2012 halving: ~9,520% increase
• 518 days after the 2016 halving: ~3,402% increase
• 335 days after the 2020 halving: ~652% increase

However, it is important to understand the difference between correlation and causation. While reward reductions create favorable conditions for price increases (due to scarcity mechanisms), other powerful factors influence Bitcoin: macroeconomic conditions, regulatory developments, technological advancements, and overall market sentiment.

The 2024 halving, for example, occurred in a markedly different market context compared to previous reductions. The market has matured, institutional presence has grown significantly, and Bitcoin’s correlation with macro factors has strengthened. Some experts suggest that over time, the magnitude of price movements after halvings may decrease in absolute terms, although the fundamental impact of scarcity on long-term value will remain.

Impact on Altcoins and the Broader Ecosystem

Bitcoin halvings often serve as catalysts for capital movement within the entire cryptocurrency ecosystem. When Bitcoin experiences bullish conditions post-halving, it typically attracts new investors to cryptocurrencies overall.

Some investors begin experimenting with alternative coins, seeking potentially higher yields. Others redirect mining resources to other proof-of-work blockchain systems that may offer more attractive reward-to-difficulty ratios. Thus, Bitcoin halvings indirectly influence capital flows across the industry.

Future Reductions and the Long-Term Schedule

The next reward reduction is expected around April 17, 2028, at block height 1,050,000. The reward will decrease from 3.125 to 1.5625 BTC per block. Planned reductions include:

• 2028: 1.5625 BTC per block
• 2032: 0.78125 BTC per block
• 2036: 0.390625 BTC per block
• 2040: 0.1953125 BTC per block

The process will continue until 2140, when the last Bitcoin is mined, and the system transitions to funding miners solely through transaction fees.

Investment Approaches: From Speculation to Long-Term Holding

Active Trader Strategies

Price volatility around halvings creates opportunities for short-term traders. Some attempt to profit from predictable fluctuations, buying before the halving in anticipation of subsequent growth, or selling at peaks. However, this approach requires precise market timing — a task that proves extremely difficult even for experienced professionals.

Long-Term Holder Strategies

More conservative investors view halvings not as trading signals but as milestones in Bitcoin’s evolution as a monetary system. They focus on the fundamental thesis: decreasing emission rate reinforces Bitcoin’s status as a store of value. This approach involves accumulating Bitcoin over time (often through regular purchases regardless of price) and maintaining a multi-year or multi-decade investment horizon.

Diversification and Risk Management

Since halvings can influence the entire crypto ecosystem, some investors practice portfolio diversification across various digital assets. This helps reduce concentration risk and capitalize on potential opportunities elsewhere in the market.

Common Misconceptions About Halvings

Myth One: Guaranteed Price Increase

While history shows growth following previous halvings, it does not mean this pattern will necessarily repeat. Many factors beyond supply reduction influence Bitcoin’s price.

Myth Two: Immediate Effects

The full impact of reward reductions on price often manifests not in days or weeks, but months or even years. The market needs time to absorb and react to changes.

Myth Three: Isolated Event

Halvings are not isolated events but part of Bitcoin’s ongoing monetary policy. They should be viewed as one element within a complex system of factors affecting value.

Myth Four: Direct Devaluation of Existing Assets

Many newcomers mistakenly believe that halving will decrease the value of their already accumulated Bitcoin. In reality, the reduction only affects the rate of new coin creation and does not impact the existing supply in circulation.

Current State of Bitcoin and Outlook

As of (January 2026), Bitcoin trades at $91.38K with an annual change of -3.51%. With approximately 19.97 million coins in circulation, the market capitalization stands at $1,825.24 billion, demonstrating Bitcoin as the largest digital asset on the market.

The 2024 halving occurred in a significantly more developed market with active institutional participation. This indicates Bitcoin’s evolution from a speculative asset to a recognized asset class within global portfolios.

Expert assessments of future halvings highlight the importance of fundamental analysis over market timing. While halvings remain significant events in Bitcoin’s economy, long-term investment success depends on understanding the broader macroeconomic landscape, regulatory developments, and technological progress.

Conclusion: Scarcity as the Architecture of Value

Reward reductions reflect a fundamental principle that sets Bitcoin apart from traditional monetary systems: mathematically guaranteed scarcity. Unlike central banks that can print currency at will, Bitcoin operates based on programmed emission decreases.

For newcomers to the crypto space, understanding halvings provides context for evaluating Bitcoin’s fundamental value proposition. For experienced participants, reductions serve as market cycle markers and points for reassessment of positions.

Regardless of investment style — active trading or long-term accumulation — understanding the mechanics of reward reductions is essential for navigating the dynamics of the cryptocurrency market and making informed decisions about Bitcoin.