Bitcoin (BTC) halving significantly impacts the cryptocurrency world. The next event, scheduled for 2024, will likely impact bitcoin price again: let’s find out how.
Bitcoin halving is an event wherein the reward given to miners for verifying transactions on the BTC blockchain is cut in half every four years. This event occurs as a mechanism to control inflation and reduce the rate of new bitcoins entering the market.
Halving has substantial implications for miners, as their profitability is also cut in half. The halving also causes a surge in the price of BTC — as the limited supply pushes the demand higher.
As we approach the forthcoming halving event next year, the market is buzzing with anticipation. This halving could push bitcoin past its all-time high, exceeding the 2021 peak of $68,789.
This article will cover all you need about bitcoin halving, how it impacts the markets and stakeholders, and everything else. But first, let’s understand what bitcoin halving is.
What is bitcoin halving
Think of bitcoin halving as the network’s version of a cost-of-living adjustment. Bitcoin halving is a predetermined event built into the Bitcoin network. It occurs every four years or after 210,000 blocks have been mined and reduce the block reward by 50%.
So where miners used to get 12.5 bitcoin for verifying a block before the 2020 halving, they now get just 6.25.
The 2020 halving was the third since bitcoin’s creation in 2009. The first took place in November 2012 and reduced the block reward from 50 to 25 bitcoin per block. The second took place in July 2016 and reduced the reward from 25 to 12.5 bitcoin.
BTC mining rewards
The idea behind halving is that bitcoin’s creator, Satoshi Nakamoto, established the total supply of bitcoin at 21 million coins. These halvings help ensure the scarcity of BTC by slowly reducing the amount of new bitcoin created until the supply is exhausted, which will be done by 2140.
Moreover, the event also helps maintain bitcoin’s deflationary nature, which limits its circulating supply and increases the cost of mining BTC.
As a result, the Bitcoin network is thought to be more secure as the incentive to attack it with more powerful computers (known as a “51% attack”) becomes less enticing.
Effects of bitcoin halving on different stakeholders
The much-awaited bitcoin halving has been a source of great intrigue for all stakeholders, including miners, investors, and crypto exchanges. So let’s look at how each of these stakeholders benefits from it:
With halving, bitcoin miners earn only half the coins they were earning previously. Simply put, they must work twice as hard to get the same rewards. So, it’s no surprise that the anticipation around the halving is exceptionally high for miners.
However, halving is not necessarily a bad thing for the miners. Since a limited number of bitcoins can be mined, the halving helps miners maintain their profit margins. This means the miners can enjoy the same rewards without having to mine more.
The halving is an excellent opportunity for investors since it usually tends to lead to a surge in bitcoin’s price. This momentum often causes a ripple effect across other cryptocurrencies and can be profitable for investors.
The surge in the price also allows investors to take advantage of low-cost entry points and potentially increase their profits.
For exchanges, the halving is a mixed bag. On the one hand, it is an exciting event that attracts many traders and thus leads to increased volumes in trading.
On the other hand, it can also be a cause of concern as the sudden surge in activity can cause technical glitches and congest the networks.
Ultimately, it’s clear that bitcoin halving affects all stakeholders differently but can eventually lead to a positive outcome.
How each stakeholder benefits depends on their goals and strategies, so it’s essential to carefully consider the implications of the halving before making any decisions.
Effects of previous halvings on the market
The market impact of previous bitcoin halvings is often referred to as the “halving effect.” In other words, halvings can be viewed as catalysts for significant market events.
BTC historical price chart. Source: CoinStats
Statistics from the past three halvings show that bitcoin’s price increased substantially in the long term following each.
The first halving in November 2012 saw the BTC price grow from around $11 to a high of $948 by December 2013.
The second halving, which occurred In July 2016, saw the BTC value increase from around $650 to a high of $13,650 by December 2017.
Lastly, the third halving in May 2020 saw the price surge from around $8,200 to a peak of $68,789 in November 2021.
When halving hits, miners are rewarded fewer coins for their work, leading to a supply shock and causing the price to climb as demand driven by scarcity weighs heavier on the availability of the currency.
This effect has become so predictable that the market is actively anticipating them, leading to an influx of buyers before each event.
It is important to note that the halving effect can vary from cycle to cycle, so although it may have had a bullish impact in the past, it isn’t guaranteed to happen each time.
That being said, if the past is any indication, the halving effect will likely continue to affect the market in the future.
The road ahead: what to expect from the next halving?
Bitcoin price chart. Source: TradingView
Halving events have been a significant catalyst for bitcoin price appreciation. As seen in the chart above, bitcoin’s price began to increase steadily in the 500 days before the most recent halving. After the halving, bitcoin’s price skyrocketed, just as in the past two.
Hence, bitcoin is likely to experience a similarly promising price rise in the days leading up to the fourth halving, slated for May 2024, by which the block reward will drop to 3.125 BTC.
Following the halving, bitcoin is expected to make a decisive up move, potentially even reaching new, higher levels.
At the time of writing, the current price of BTC is around $22,715, with a market cap of $438 billion.