The Bitcoin Halving is Here: What Does it Mean for Investors? (2024)
The long-awaited bitcoin halving, an event which occurs roughly every four years, has now happened. This was be the fourth in bitcoin's history and means that the miners' reward, following the approval of new blocks added to the blockchain, will fall by half. This will reduce the frequency of new BTC injected into the system, as the total amount of mined bitcoin edges closer to the maximum threshold of 21 million circulating units.
The first halving took place on November 28 2012, after the first 210,000 blocks had been drawn. On that occasion, the reward was reduced to 25 coins per new block. After a further 210,000 blocks the reward fell to 12.5 bitcoins on July 9 2016, and to 6.25 on May 12 2020. With the upcoming halving it will fall from 6.25 to 3.125 BTC. This continues until the year 2140, when after the final halving, all 21 million tokens will be in circulation.
By reducing the reward for creating new blocks on the blockchain– an expensive process requiring energy-hungry computers– the incentive to produce new bitcoins is theoretically reduced. Halving, therefore, has historically triggered supply shocks that, in turn, have generated greater interest and speculation within the crypto community.
Generally, halving seems to have triggered price increases in the past. According to research by crypto tax consultancy CoinLedger in the six months following the last two halvings, the value of BTC increased by 51% and 83% respectively. Of course, the value of bitcoin in those days was far from what it is today: at the 2016 halving, one BTC was worth $650 and in 2020, $8,572.
Why This Bitcoin Halving Could Be Different
The current market dynamics in which the halving will take place are unique in the history of cryptocurrency, prompting a reassessment of its potential impacts, according to a study published last week by the research team of 21Shares, the first issuer of ETPs on crypto in Europe.
The researchers said that the four-year halving effect gradually diminished over time, with each successive event leading to a decrease in growth rates in the value of bitcoin. For example, BTC surged about 5,500% in the four years following the first halving, by about 1,250% in the cycle following the second halving and by roughly 700% in the current cycle.
And bitcoin is hit an all-time high this year, whereas during past halvings it has traded 40% to 50% below prior highs.
One wildcard in the current cycle has been the launch of cryptocurrency exchange-traded products in the US. "BTC spot ETFs demonstrated staggering trading volumes, signaling significant interest from traditional investors by reaching a new all-time high of over $1 billion of inflows in a single day on March 13, 2024," 21Shares said.
Finally, the study's authors claim that the entry of institutional players is changing the overall 'habits' of bitcoin investors, with long-term holders becoming increasingly important and the amount of bitcoin held on exchanges at a five-year low.
“If this trend were to persist, bitcoin's supply would become increasingly illiquid, setting the stage for a supply squeeze and consequently a potential sharp rise in price,” say the analysts.
21Shares is, unsurprisingly, striking an optimistic tone on bitcoin. What seems certain, however, is that current supply and demand dynamics are very different from those of the past.
Bitcoin's supply is limited to a maximum of 21 million coins. This means no additional coins will be generated or created after reaching that 21 million limit. Nakamoto
Nakamoto
Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed Bitcoin, authored the Bitcoin white paper, and created and deployed Bitcoin's original reference implementation.
https://en.wikipedia.org › wiki › Satoshi_Nakamoto
The Bitcoin Halving takes place about every four years and reduces the block reward by 50%. This lowers the supply of bitcoins entering the market, which increases scarcity and can act to raise its price if market conditions remain the same.
Every four years, on the halving day, the amount of new Bitcoins created gets cut in half. This means that when Bitcoin halves, the reward given to the contributors securing the network is reduced by 50%, directly impacting the rate at which new Bitcoins are introduced into circulation.
“It's pretty much Economics 101” that bitcoin prices go up after halving, according to Sevens Report analyst Tom Essaye, who explained that so long as demand doesn't decrease and new supply goes down, the “only thing left to move is price.”
We can predict that if the operational cost is the same, and Bitcoin price remains above $54,000.00 after the halving, then Bitcoin is still worth mining.
And indeed, the wealth management team at Morgan Stanley told its clients last October that the time to buy Bitcoin is before the halving, not after. Simply stated, if you wait too long to buy, you'll miss out on all of Bitcoin's expected gains right after the halving takes place.
For instance, after the first halving, the reward for Bitcoin mining dropped to 25 BTC per block. The last halving will occur in 2140. At that point, there will be 21 million BTC in circulation and no more coins will be created.
Ethereum (ETH) faces indirect consequences during Bitcoin halving events due to increased market interest and investment in cryptocurrencies. Typically, Ethereum benefits from the increased crypto market news exposure, resulting in favorable results.
After the halving, the rate of issuance of new bitcoin as well as the rewards for successful bitcoin miners are cut in half. There can only be 21 million bitcoin, and fewer new tokens entering circulation could impact bitcoin prices. That's why the halving is watched closely by miners and investors alike.
A 50% gain this year would boost Bitcoin's price to $65,800 by Jan. 1, 2025, while another 50% gain would drive its price to $98,700 by Jan. 1, 2026. So if Bitcoin merely replicates its average annual growth rate from the past decade, its price could approach $100,000 by the end of 2025.
Mining companies can try to mitigate these higher costs by optimizing energy costs, increasing mining efficiency and buying better-priced hardware. “The weighted average cash cost of production in Q4 was approximately $29,500; post-halving, it is projected to be about $53,000,” the authors wrote.
The bitcoin (BTC) price is likely to weaken after the reward halving, a quadrennial event that slows the rate of growth in bitcoin supply and looks set to occur around April 19-20, Wall Street giant JPMorgan (JPM) said in a research report on Wednesday.
“Post-halving, we could experience an extreme supply shock returning bitcoin's price to current or higher levels, while also increasing miners stock prices.”
Bitcoin transaction fees have significantly lowered following the halving, with medium-priority transactions now costing $8.48 while high-priority transactions costing $9.32, according to data from Mempool. space.
Although halving will certainly have some effect on bitcoin's value and publicly-traded miners' stocks, it will not have any direct consequences for ETF holders.
Halving takes place every four years. The halving policy was written into Bitcoin's mining algorithm aimed to counteract inflation by maintaining scarcity. In theory, the reduction in the pace of Bitcoin issuance means that the price will increase if demand remains the same.
Introduction: My name is Tish Haag, I am a excited, delightful, curious, beautiful, agreeable, enchanting, fancy person who loves writing and wants to share my knowledge and understanding with you.
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