Estimating the Impact of the Bitcoin Halving on Its Price Using Synthetic Control

TL;DR

This paper uses synthetic control methods to causally analyze the impact of Bitcoin halving events on its price, finding a significant effect for the 2024 halving but not for 2020.

Contribution

It introduces a causal analysis of Bitcoin halving effects using synthetic control, filling a gap in prior correlational studies.

Findings

2024 halving increased Bitcoin price three months later

No statistically significant effect found for 2020 halving

First causal analysis of Bitcoin halving impacts

Abstract

The third Bitcoin halving that took place in May 2020 cut down the mining reward from 12.5 to 6.25 BTC per block and thus slowed down the rate of issuance of new Bitcoins, making it more scarce. The fourth and most recent halving happened in April 2024, cutting the block reward further to 3.125 BTC. If the demand did not decrease simultaneously after these halvings, then the neoclassical economic theory posits that the price of Bitcoin should have increased due to the halving. But did it, in fact, increase for that reason, or is this a post hoc fallacy? This paper uses synthetic control to construct a weighted Bitcoin that is different from its counterpart in one aspect - it did not undergo halving. Comparing the price trajectory of the actual and the simulated Bitcoins, I find evidence of a positive effect of the 2024 Bitcoin halving on its price three months later. The magnitude of this effect is one fifth of the total percentage change in the price of Bitcoin during the study period - from April 2, 2023, to July 21, 2024 (17 months). The second part of the study fails to obtain a statistically significant and robust causal estimate of the effect of the 2020 Bitcoin halving on Bitcoin's price. This is the first paper analyzing the effect of halving causally, building on the existing body of correlational research.