What Exactly Is Bitcoin Halving, Anyway?
It is important to understand that miners receive Bitcoin in a Bitcoin wallet for each transaction that they verify. This is necessary in order to comprehend the halving of the Bitcoin supply. As a result of the halving, miners will receive half of what they were previously entitled to receive for each transaction that is verified. In 2009, the first Bitcoin was mined, and each miner was awarded fifty Bitcoins for their efforts.
A predetermined plan calls for the number to be cut in half every four years. It is anticipated that this process will proceed until somewhere around the year 2140, at which point all 21 million coins will have been mined. Since Satoshi Nakamoto mined the first million Bitcoins in 2009, approximately 90 percent of the cryptocurrency’s total supply has been mined. Between now and 2140, the number of new Bitcoins that are mined will be significantly less than 2 million.
A Brief Overview of Bitcoin’s Halving Process
If we look at the history of how the difficulty of mining Bitcoin has been halved, we can see that the difficulty is much lower now than it was in 2009. The reward for mining Bitcoin was reduced to just 25 BTC in 2012, exactly four years after the digital currency was mined for the first time. In 2016, miners were only given 12.5 BTC for each coin they produced. In the year 2020, the rewards were reduced to 6.25 BTC.
Because there are fewer bitcoins available, their value is higher for the time being. However, the price of Bitcoin does not exist in a void; rather, it is influenced by factors such as the state of the economy as a whole, the stock market, the demand for Bitcoin among consumers, and the confidence of Bitcoin purchasers. If the market goes through a crypto winter before the next halving event, it will be interesting to see how the price of Bitcoin is impacted as a result of this situation.
Does the halving of Bitcoin’s block reward have any benefits?
In the vast majority of cases, the response to the question “Is halving good for Bitcoin?” is an emphatic “yes.” After a halving event, it may be more difficult for miners to acquire Bitcoin, but the increased scarcity typically causes the value of the Bitcoins they already possess to increase.
The price of Bitcoin rose by 40 percent from its all-time low just before the halving event and is projected to rise another 85 percent in 2020. This event was shrouded in uncertainty because of the pandemic caused by the Coronavirus as well as a general slowdown in the economy. In the year 2020, a footnote will invariably be necessary when discussing statistical data.
Despite this, the price of Bitcoin increased after both of the halving events that took place in November 2012 and July 2016. After each and every one of these deflationary events, there has historically been a brief sell-off, which typically comes right before the beginning of Bitcoin’s most dramatic bull runs. Between the years 2012 and 2014, the price of BTC increased by a factor of 10,000. Between the middle of 2016 and the end of 2017, there was an increase of approximately 2,500%.
The story behind the halving of Bitcoin’s supply and its subsequent rise in value is more complicated than you may realise.
According to the opinions of various experts, a halving event typically results in an increase in the value of bitcoin over the course of time. When the value of their bitcoin holdings increases, investors frequently liquidate their positions in order to realise a profit. A halving event frequently sets off a sell-off, which pushes prices lower just prior to the beginning of a bull run. This happened in 2012 and 2016, as well as in the year 2020, despite the fact that there were other economic factors at play. Experts agree that halvings have already been “priced in” to the value of Bitcoin, which means that an event involving halvings and an increase in the price of Bitcoin might not be directly related to one another.
In an interview with Reuters reporters, the founder of Binance, Changpeng Zhao, stated that “historical events do not necessarily indicate what will happen in the future.” In 2020, Zhao made the comment that miners may be less willing to sell off their existing cryptocurrency investments because it will cost them almost double to produce Bitcoin. This was in reference to the fact that the cost will almost double. He made the observation that there is a psychological factor involved in every halving event.
Nevertheless, by May of 2021, the value of a bitcoin had increased by 533%. In point of fact, the most recent halving event outperformed even the most optimistic projections made by investors. In November of 2021, the value of the cryptocurrency reached an all-time high of more than $68,000.
What Can We Expect When the Bitcoin Supply Is Halved in 2024?
After the subsequent halving event, which will take place in 2024, miners will only receive 3.125 bitcoin for each block that is mined. If the daily average number of blocks mined remains constant after the halving event in May 2024, then the number of coins that are mined will halve to 450 per day, as predicted by the experts.
Effects on the Market
There is a strong correlation between the market value of Bitcoin and the market values of other cryptocurrencies. This halving event has a good chance of putting an end to the crypto winter and launching another bull run for all cryptocurrencies. There is a good chance that this halving event will help end the crypto winter. The previous crypto winter lasted until approximately December 2020, just before the halving event that was scheduled to take place in May 2020.
It is possible that the bear run in cryptocurrencies has come to an end as a result of people investing in cryptocurrencies prior to the halving event. The pandemic was the direct cause of a bear market in the cryptocurrency market in Spring of 2020; however, due to the halving event, this market did not experience this bear market.
How the Bitcoin market, in particular, and the cryptocurrency market, in general, will respond to the next halving event is going to be determined by a variety of different economic factors. Robert Johnson, a professor at the Heider College of Business, was quoted in Forbes as saying, “I don’t expect crypto to come roaring back as it did in 2021 because Federal Reserve monetary policy has actually become a headwind for the asset class.”