Bitcoin’s Halving Event: What You Should Know?

On April 19, Bitcoin, the most popular digital currency worldwide, went through a planned change that reduces how many new coins are made. This change, called a Bitcoin’s Halving happens about every four years. It’s meant to make Bitcoin scarcer over time, according to CoinGecko.

According to Coinmarketcap data, Bitcoin’s market dominance stands at 54.14%, marking a 0.12% increase over the day.

After the halving, Bitcoin’s price remained relatively steady, with a slight decline of 0.47% to reach ₹58,89,117 on Wazirx.

Cryptocurrency supporter had high expectations for this event, believing it would strengthen Bitcoin’s value as a scarce asset. Satoshi Nakamoto, Bitcoin’s founder, limited the total supply to 21 million coins.

The halving follows a period of significant price swings for Bitcoin. In March 2024, Bitcoin hit an all-time high of USD 73,803.25 but has since pulled back somewhat. Additionally, the broader cryptocurrency market has been boosted by the recent approval of spot Bitcoin ETFs in the United States and anticipation of lower interest rates.

WHAT IS BITCOIN’S HALVING AND WHY IS IT SIGNIFICANT?

Bitcoin’s halving is a scheduled event that happens approximately every four years and has a significant impact on Bitcoin production. Miners employ specialized, noisy computer setups to solve complex mathematical problems. Upon solving these puzzles, miners receive a set number of bitcoins as a reward.

Halving does precisely what its name suggests—it halves the fixed income. As the mining reward decreases, so does the enter of new bitcoins into the market. This slows down the growth rate of available coins to meet demand. Bitcoin’s limited supply is a fundamental characteristic. With only 21 million bitcoins set to ever exist, and more than 19.5 million already mined, there are less than 1.5 million remaining.

As long as demand either remains stable or increases faster than supply, Bitcoin prices are expected to rise due to the halving’s effect on output. Some argue that Bitcoin can act as a barrier against inflation. Nonetheless, experts caution that future gains are never guaranteed.

HOW FREQUENTLY DOES HALVING HAPPEN?

According to Bitcoin’s code, halving takes place after the creation of every 210,000 “blocks,” which record transactions during the mining process. While specific calendar dates aren’t fixed, this typically translates to roughly once every four years.

EXPERT’S OPINION

Andrew O’Neill, a crypto analyst at S&P Global, expressed doubt about drawing definitive price predictions solely from past halving events. He emphasized that various factors influence prices, not just halving.

Bitcoin has faced uncertainty since reaching record highs in March and has experienced declines over the past two weeks due to geopolitical tensions and expectations of prolonged higher interest rates by central banks, which have unsettled global markets.

ALSO READ: Investing in Cryptocurrency: A Guide for Beginners

IMPACT OF HALVING ON MINERS?

Miners are facing the challenge of adjusting to the reduced rewards while also managing operational costs efficiently.

Andrew W. Balthazor, a Miami-based attorney specializing in digital assets at Holland & Knight, highlight the potential impact of halving on miners’ ability to cover expenses, even with a slight increase in bitcoin price. He identify the importance of not solely relying on the assumption of Bitcoin’s price increasing. Miners need to anticipate extreme volatility and plan accordingly as part of their business model.

Miners who have prepared well in advance may have taken steps such as improving energy efficiency or securing additional capital. However, less-efficient mining operations may encounter difficulties as a result of these changes.

IMPACT HALVING ON BITCOIN’S PRICE?

It’s uncertain. Historically, after each of the three previous halvings, Bitcoin’s price showed mixed movements in the initial months and eventually rising significantly higher after a year. However, it’s important to remember that past performance doesn’t guarantee future results.

Adam Morgan McCarthy, a research analyst at Kaiko, expressed caution about drawing definitive conclusions about the impact of halving, noting that the sample size of three previous halvings isn’t large enough to predict substantial price increases.

For instance, during the last halving in May 2020, Bitcoin’s price was around $8,602 according to CoinMarketCap. By May 2021, it had surged almost seven-fold to nearly $56,705. Similar significant price increases were observed after the halvings in July 2016 and November 2012. However, experts like McCarthy highlight that other bullish market conditions also played a role in these returns.

Friday’s halving comes after a year of substantial price hikes for Bitcoin. As of Friday night, Bitcoin’s price was $63,907 according to CoinMarketCap. Although it’s down from last month’s all-time high of about $73,750, it’s still double the price from a year ago.

The recent rise in Bitcoin’s value is often attributed to the early success of a new investment method: spot Bitcoin ETFs. These ETFs, approved by U.S. regulators in January, garnered significant attention. According to a research report from Bitwise, spot ETFs saw inflows of $12.1 billion in the first quarter.

Ryan Rasmussen, senior crypto research analyst at Bitwise, suggests that the persistent or growing demand for ETFs, combined with the impending halving’s impact on supply, could further boost Bitcoin’s price. He anticipates strong performance over the next year, with some predictions suggesting gains as high as $400,000, though the consensus estimate falls within the $100,000-$175,000 range.

However, other experts advise caution, suggesting that the potential gains may have already been realized. In a recent research note, analysts at JPMorgan expressed skepticism about post-halving price increases, suggesting that the event may have already been factored into the market. They highlight that the market remains in overbought conditions based on their analysis of Bitcoin futures.

FAQs

1. What is Bitcoin’s halving?
   • Bitcoin’s halving is a programmed event that occurs approximately every four years, reducing the reward for mining new blocks in the Bitcoin blockchain by half.
2. How often does Bitcoin’s halving occur?
   • Bitcoin’s halving occurs after every 210,000 blocks are mined, which roughly translates to once every four years.
3. Why does Bitcoin’s halving matter?
   • Bitcoin’s halving is significant because it decreases the rate at which new bitcoins are created, effectively reducing the supply of new coins entering the market. This scarcity often leads to an increase in demand and potentially higher prices for Bitcoin.
4. What impact does Bitcoin’s halving have on Bitcoin’s price?
   • Historically, Bitcoin’s halving events have been associated with increases in Bitcoin’s price, as the reduced supply of new coins often leads to increased demand and scarcity, driving up prices.
5. How does Bitcoin’s halving affect miners?
   • Bitcoin’s halving directly impacts miners by reducing their rewards for validating transactions and mining new blocks. Miners must adapt to lower rewards and potentially higher operational costs, which may affect their profitability.
6. Is Bitcoin’s halving predictable?
   • Yes, Bitcoin’s halving events are predictable and are programmed into the Bitcoin protocol. However, the exact timing of halving events may vary slightly due to fluctuations in block production time.
7. What happened during previous Bitcoin halving events?
   • During previous Bitcoin’s halving events, there was a mix of short-term price volatility followed by long-term price increases. Each halving event has contributed to Bitcoin’s overall scarcity and has been accompanied by significant attention from investors and the media.
8. How does Bitcoin’s halving relate to supply and demand?
   • Bitcoin’s halving reduces the rate at which new bitcoins are introduced into circulation, effectively decreasing the supply. As demand for Bitcoin remains constant or increases, the decrease in supply can lead to higher prices due to scarcity.
9. What are the potential risks associated with Bitcoin’s halving?
   • Some potential risks associated with Bitcoin’s halving include increased volatility in Bitcoin’s price, potential disruptions to mining operations, and the possibility of decreased profitability for miners.
10. How can investors prepare for Bitcoin’s halving?
    • Investors can prepare for Bitcoin’s halving by staying informed about the event and its potential implications for the market. This may involve conducting research, diversifying their investment portfolios, and being prepared for increased volatility in Bitcoin’s price.

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