Reduction of New Bitcoin Supply: The halving is a scheduled event in the Bitcoin code that occurs approximately every four years (or every 210,000 mined blocks). In this event, the reward that miners receive for validating transactions and adding new blocks to the chain is cut in half. This means that the amount of new Bitcoins entering circulation daily decreases drastically.
Supply and Demand Dynamics: According to basic economic principles, if the demand for an asset remains or increases while its supply decreases, the price of that asset is likely to rise. The halving reduces the rate at which new Bitcoin supply is created, which, if demand remains strong or grows, creates upward pressure on the price.
Post-Halving Price History: Historically, the periods following previous halvings (2012, 2016, and 2020) have been followed by significant bull markets, where the price of Bitcoin reached new all-time highs months or even more than a year after the event. This historical correlation has led many investors and analysts to believe that the halving is a catalyst for future price increases, marking the beginning of a new bull cycle.
Scarcity Narrative: The halving reinforces the scarcity narrative of Bitcoin. With a maximum supply limited to 21 million coins and a decreasing issuance rate, the halving underscores that Bitcoin is a finite asset and increasingly difficult to obtain through mining. This perception of scarcity may enhance its appeal as a store of value.