Surprise Winners And Losers Of The Bitcoin Halving Like Runes, Polygon

If “The Halving” is making it into your media stream for the first time, fear not, it’s not as complicated as you might think. Simply put, the rewards given to those who verify and validate transactions on the Bitcoin
BTC
blockchain are being cut in half. This happens roughly every four years, and is part of Bitcoin’s design, helping to gradually reduce the rate at which the cryptocurrency is introduced to tackle inflation.

This is the fourth halving event. Previous halvings took place in 2020, 2016, and 2012. Before this latest event, the reward for each Bitcoin block was 6.25 BTC. After, the reward will be 3.125 BTC. As well as battling inflationary effects and maintaining scarcity, many expect the Bitcoin price to increase, as the supply will be reduced. This would continue incentivizing miners to keep verifying transactions and making them immutable. Alternatively, and quite feasibly, a significant drop in BTC price after the halving could damage miners and slow down the network, which has recently been running at record speeds.

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There will be more halvings in the future. Expect to be reading about this event again in early 2028. At that point, the reward will halve again to 1.5625 BTC per block. This will keep going on until around the year 2140 when mathematicians predict the last Bitcoin will be mined. That’s because there are just 21 million Bitcoins, and there can never be more. Unlike the US Dollar, Bitcoin is deflationary by design.

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“The majority of people outside bitcoin don’t understand what the halving is or the role it plays, Danny Scott, chief executive of crypto platform CoinCorner, told The Independent. “The halving helps naturally increase price due to supply and demand over a medium to long term outlook, which in turn brings new people in as the price increases past previous all time highs. So indirectly it plays a huge part in shaping investor sentiment and market speculation.”

Industry Impact: Beyond Bitcoin

Given Bitcoin’s leading role in the cryptocurrency world, representing more than 50% of all on-chain value, when something happens to BTC, the snowball effect is almost always immediate and noticeable. Often, Bitcoin is at the end of a chain reaction of external events, which ultimately come to affect its price. Its price then does change, and that causes a ripple effect back on the market. There’s a back-and-forth. A halving is different from a typical price fluctuation, because, for the first time in four years, the catalyst is Bitcoin’s design itself.

Altcoins (alternative coins), essentially any cryptocurrency other than Bitcoin, are set to receive a knock-on effect from the halving. The interconnectedness of Bitcoin and altcoins goes well beyond price correlation. The ramifications are much deeper than that.

A lot of the relationship is about confidence and sentiment. When confidence in Bitcoin is high, money leaves altcoins and moves into BTC, and vice versa. When people are stocking up on Bitcoin in large amounts, as we saw with the recent Spot Bitcoin ETF excitement, the whole market can benefit from inflows from new investors.

Fed up with the price and sentiment correlation with Bitcoin, many Layer 1 and Layer 2 blockchains try, by design, to avoid their native tokens being linked to BTC. These projects have designed their blockchain networks and protocols differently, creating innovative smart contracts and offering permissionless ways of supporting ownership and transaction settlement. Still, despite their best efforts, they will almost certainly be impacted by the halving.

Another impact, beyond Bitcoin, or more accurately speaking, on top of Bitcoin, could come from Runes. Launched by the creator of Bitcoin’s Ordinals protocol (essentially NFTs on Bitcoin), Runes presents a new fungible token standard to rival BRC-20. Runes DEX just received a $2M seed investment for their work.

“Runes represents a groundbreaking evolution in the Bitcoin landscape. Their intricate design and seamless functionality pave the way for a new era of digital commodities within the cryptocurrency realm. As Bitcoin redefines the boundaries of innovation, Runes is a testament to its enduring legacy,” was one quote pulled out as significant from Jonathan Jungers blog post on Linkedin.

As Bitcoin mining rewards are slashed, people will turn their attention elsewhere, and the Runes launch, set to coincide with the Halving, is one strategically-timed project that I think many will be paying close attention to. If Ordinals are NFTs, then Runes are like regular tokens, except very easy to make and launch. Could they start a wave of Bitcoin-backed meme coins? Perhaps.

Casey Rodarmor, the brain behind Ordinals and Runes, noted on X: “The value proposition of crypto is tokens, NFTs, and AMMs. Bitcoin now has inscriptions, a superior NFT
NFT
standard, and soon runes, a superior token standard. Soon it’ll also have something superior to AMMs.”

L1s & L2s: Collateral Damage

Layer 1 blockchains are the core infrastructure behind blockchain technology. Bitcoin is the biggest, followed by Ethereum
ETH
, BNB
BNB
, Solana
SOL
, and Ripple. Layer 2 blockchains sit on top of an L1. They typically act as a smart way of relieving congestion on the Layer 1 blockchain, diverting transactions to save time, money, and energy. Some big L2s include Polygon
MATIC
, built on Ethereum, the Lightning Network, built on Bitcoin, and Dymension
DYM
, built on Cosmos.

Despite L2s helping L1s, they’ve come to be seen as frenemies or competitors. Layer 1s have different values (security and decentralization) to Layer 2s, which prioritize scalability and cost-effectiveness. Then there are Layer 3s, which take things further, building specialized bridges on top of Layer 2 to drive further efficiency and customization for decentralized applications. This is where a lot of the most interesting innovation is taking place right now, and where the game-changing developments are arguably most likely to come from. The halving, however, poses an existential threat.

If the halving causes Bitcoin to tumble, that would destabilize most of the other L1s with downward price action and selling pressure, weakening their treasuries and affecting ecosystem investment. Network activity will drop, making the L2s quieter, less able to earn from transaction fees, and also with reduced treasuries. The L1 and L2 downturn would leave the L3s hanging on by a thread, with little interaction, income, or interest, theoretically.

Equally, if Bitcoin’s latest halving starts another bull run and the price goes up, funds will likely exit L1s, L2s, and L3s in favor of the climbing BTC. Still, this is a much better outcome, as billions of dollars in new investment will come into the industry, and when Bitcoin eventually stabilizes or investors take profits, the funds will make their way back into L1s, L2s, and L2s – where so much great innovation can take place.

The Halving is a Crucial Moment for Bitcoin

The halving is a significant moment and mile marker for Bitcoin, the aftereffects will show us just how robust the other side of the crypto world is. We’ve seen altcoins and their respective blockchains comprise around 50% of the total market capitalization while representing far more than 50% of the great ideas, pioneering developments, and talented workforce.

Whatever happens with Bitcoin’s price as a result of the halving, I want to continue to see collaboration, interoperability, and new user-friendly layers being built on top of L1s and L2s. What’s important is that crypto continues to evolve and detach itself from Bitcoin’s price. The best way it can do that is by continuing to build sustainably, solve problems, and grow communities. At the same time, I think we’ll see consolidation at the L2s and L3s level, which might not be such a bad thing, allowing their talent to refocus and contribute to more viable projects.

Disclaimer: This information is for educational purposes only and should not be considered as financial or investment advice.