Executive Summary

Bitcoin’s fourth halving event occurred on April 20, 2024, marking a significant milestone in the cryptocurrency’s lifecycle. This scheduled event, which halves the block reward for miners every four years, has historically been a precursor to price increases. Given the reduction in reward and recent price volatility, we have updated our internal models and wish to share our updated thoughts on what level represents value.

Key Insights

The BTC halving reduced emissions-based mining rewards by 50%, to 450 BTC daily.

In USD terms daily supply reduces from $56m to $28m. This equates to an annual inflation of 0.9%.
Historically, it has taken over 1.4 years for BTC to reach all-time highs post the halving date.
JellyC Research conclude that the reduction in supply is minimal relative to the overall volume & market capitalisation of BTC.
The BTC halving has lifted miner’s cost of production in USD terms.
The higher cost of production is partially offset by transaction fees.
JellyC Research outline that buying BTC at or below the electricity cost of mining one BTC represents excellent value.

Understanding Bitcoin Halving

The recent halving decreased the mining reward from 6.25 BTC to 3.125 BTC per block, effectively reducing Bitcoin’s ‘inflation’ rate
to approximately 0.9%. This rate is significantly lower than the supply growth of gold (approximately 2%) and most global fiat
currencies (e.g., US inflation currently at about 3.5%).

Historical Price Action Post-Halving

Analyzing the price action after previous halvings

July 9, 2016 Halving: Price increased by approximately 3400% within 518 days.

May 11, 2020 Halving: Price increased by approximately 600% within 539 days.
April 20, 2024 Halving: Price at halving was $64,000.

Additional Context

The SEC approved the BTC ETFs on January 10th, causing a pre-halving run-up in BTC from $43k to $74k.

The market capitalization of BTC on April 20th was $1.25 trillion, much larger than in 2020 and 2016.
The daily volume of spot BTC & derivatives exceeds $50 billion. Compare this to the reduction in supply of $28 million per day.

Miner’s Input Costs and Profitability

Post-halving, miners face pressure on their breakeven costs, which vary based on factors such as mining fleet efficiency, power costs, and ancillary expenses. Research indicates a breakeven range of $37k-68k per Bitcoin mined, not accounting for transaction fees.

Transaction Fees and Sustainability

Recent innovations, such as Ordinals and Runes, have introduced new transaction types, increasing the relevance of transaction fees as a portion of mining rewards. Our analysis suggests a sustainable ‘smoothed’ transaction fee rate of $5,000 per BTC mined. This means the overall average cost of production for a BTC miner ranges from $32k-63k.

BTC entry point below mining cost (even better below electricity cost)

Purchasing BTC at or below energy production levels to mine one BTC has been historically an excellent entry strategy (see below chart).

Bitcoin Fair Value: Mining Costs

Conclusion

The Bitcoin halving is a pivotal event that historically precedes significant price increases. While the reduction in supply is not material relative to BTC market capitalization and volume, the halving has significantly impacted the overall cost of production for BTC miners. JellyC will be looking to add to their BTC holdings around or below the cost of electricity taken to mine 1 BTC, currently $30,000.

Bitcoin Halving: BitcoinValue Point