Bittensor's first halving, why am I still bullish $TAO?

Compiled by Sami Kassab

TechFlow

December 2025, Bittensor is about to usher in its first halving, which has sparked mixed emotional reactions within the community. Some people are calm and confident, believing that the network can adapt to this change; Others are upset, believing that the agreement may need to be adjusted. Such a reaction is not surprising.

If you look back at the history of Bitcoin's first halving, you will see that the sentiment at that time was very similar to now: pessimists firmly believed that Bitcoin would fall into a death spiral, while optimists believed that the system would adapt because the incentives themselves required so.

In short, the pessimists are wrong. Bitcoin still exists today and proves the effectiveness of programmatic monetary policy. We believe that the Bittensor halving will show a similar outcome.

However, there is a key difference between Bitcoin and Bittensor: Bittensor owns two tokens – TAO and Alpha (subnet tokens), which each follow different halving schedules, further complicating the situation.

We'll break it down in detail, but first clarify our long-term view: halving is good for both TAO and subnet tokens, even if, like Bitcoin, the exact timing of this impact is difficult to predict.

Overview

If you don't want to go into the details, here's a brief version:

For TAO, the halving will cut the token issuance by half, meaning less TAO in circulation and less TAO that can be sold. This is obviously a good thing.

In the Bitcoin network, miners earn BTC directly, and the halving reduces their earnings and the amount they can sell. In Bittensor, subnets earn TAO, and halving means less TAO flows into these subnets, so miners, validators, and token holders can sell less TAO.

For subnet tokens, the situation is more complicated. At its core, the subnet is a liquidity pool, and the TAO halving will cut on-chain liquidity injections in half. Tighter liquidity leads to higher volatility, allowing price movements to be amplified in both directions.

For example, if the subnet market (sum of prices) rose by 1% last week under current liquidity, this increase could be marginally amplified to triple in the post-halving liquidity environment. The net flow direction will be the only variable affecting the price of the subnet.

Here's our opinion:

• Bittensor remains the undisputed leader in AI and crypto.

• TAO's swift price recovery after experiencing brutal altcoin liquidations on October 10 showcases its strong resilience.

• The subnet market, or sum of prices, seems to have bottomed out.

• The fundamentals of the leading subnet are improving, and buybacks are starting to generate real income for the token.

• The launch of subnet asset management products like Yuma's public TAO trust application by Grayscale, and more Bittensor DATs will make subnets more accessible to institutions and retail investors.

• The yield on TAO staking (Root) continues to decline, which could drive TAO inflows into the subnet as investors look to avoid dilution and capture upside.

Therefore, our view is that we believe that subnet capital flows are about to turn positive. In a post-halving environment of higher volatility and tighter liquidity, this is a tailwind for subnet tokens.

Breaking Down

Bittensor protocol distributes TAO in proportion to the price of the subnet token (Alpha) by injecting it into each subnet's liquidity pool. This mechanism was introduced in February 2025 through the dynamic TAO upgrade, marking a shift towards a market-driven model in Bittensor's token distribution system.

TAO injections into liquidity pools are designed to keep subnet token prices stable. When the chain injects TAO into one side of the pool, it injects alpha into the other side to maintain balance. After the halving, the TAO injection volume will be reduced by 50%, and the corresponding alpha injection amount will also be automatically reduced to prevent price fluctuations.

For example, if a subnet currently owns 10% of the issuance share and trades at 0.1 TAO (assuming the sum of the prices is 1 for simplified calculation), it receives 0.1 TAO and 1 alpha per block. After the halving, the same subnet will receive 0.05 TAO and 0.5 Alpha per block.

The main impact is the slower growth rate of TAO and alpha liquidity in the subnet pool. Reduced liquidity means increased price volatility, both up and down. Basically, the transaction of the subnet token will show a higher beta value.

This affects miners the most. They are structured sellers who face costs in dollars and therefore periodically exchange alpha for TAO (and then TAO for dollars) to cover fees. After the halving, reduced liquidity means less TAO for each sale of Alpha, as TAO depth decreases and slippage increases. As a result, the amount of TAO extracted from the subnet pool and sold will be reduced.

Subnet owners can address this imbalance by reducing miner issuance by about 50%, effectively creating an "alpha halving." While this will not fully restore pre-halving conditions, it can bring the system closer to equilibrium. By reducing the amount of alpha entering circulation, subnets can slow down the sale of alphas in thinner TAO pools, preventing liquidity from running out faster. Reducing alpha issuance in tandem with the TAO halving stabilizes subnet prices and mitigates volatility across the network.

Alternatively, subnets can offset the impact of the halving by gradually increasing structural demand, possibly through buybacks, reducing the need to cut miner issuance.

the impact analysis

halving is that the subnet will get less TAO. This pressure will drive less efficient miners out of the network, a pattern that occurs after every Bitcoin halving.

Weaker subnets will also face difficulties. As inflows of TAO halved, liquidity growth slowed and miner margins shrank, making it harder to maintain participation. This will strengthen the Pareto distribution, leading to a concentration of issuance towards stronger subnets. In effect, the network reallocates TAO from weaker subnets to stronger ones.

At the same time, new subnets will face more challenges when launching liquidity. They will compete for less TAO issuance, which means less value flowing into the dynamic TAO system, while new subnets start from scratch. Since the alpha injection in the liquidity pool is also halved, the circulating supply of new subnets will grow slower than Laozinet. The lower circulating supply keeps the root prop at a higher level for a longer period of time, which means that the systematic selling pressure on the new subnet is more pronounced than its predecessors.

But that's only one side of the problem. If the TAO price rises due to reduced selling pressure, subnet owners may not need to slash miner issuance significantly or even not at all. Miner profit margins may return to pre-halving levels, while the challenge of launching liquidity on new subnets will ease as the dollar value of TAO issuance rises. Similar to Bitcoin, this effect may not be immediately apparent but will gradually manifest as supply decreases to catch up with demand.

The halving of vulnerability

will bring shocks and volatility. The impact of reduced supply on the system will take time to manifest. But after Bitcoin successfully validated programmatic monetary policy, there is no reason to doubt its effectiveness. With an equally committed community, we are confident that Bittensor will follow the same path.

Nassim Taleb argues that low volatility leads to vulnerability because it hides stress until the system collapses. In contrast, systems that face regular shocks become stronger. Bittensor's halving is such a shock. This is an unintentional stress test that makes the network stronger. This is the first of many shocks that the network must undergo such tempering if it is to thrive in the coming decades.