Experts have debated the future of bitcoin since the first institutional money began trickling into the cryptocurrency market. Regardless of whether people are bullish or bearish on the digital currency, it is clear that investors are still excited about the opportunities it presents. And the next one — the bitcoin halving event planned for this week — keeps that excitement high.
In 2024, there were two events that crypto-enthusiasts predicted would strengthen bitcoin prices and spark a renewed interest in the market. One of these was the approval of bitcoin ETFs in January. That event, as expected, brought billions of dollars in inflows to the 11 approved ETFs and sent bitcoin prices soaring to an all-time high of $73,750.
The second event, the bitcoin halving, is approaching. This event has to do with the technological side of bitcoin; when that happens, the production of new bitcoin will be—wait for it—halved.
There is no set date for the halving event. Instead, it will occur after 210,000 blocks on bitcoin’s blockchain have been filled with data. Judging by the current rate at which the blockchain is being filled, experts expect this to happen on April 19 or 20. The event itself will mostly impact bitcoin miners, but it’s a big deal for most anyone connected to the asset. Here are some of the biggest changes ushered in by the halving.
Miners will earn less bitcoin for their work
First of all, the bitcoin halving event will affect bitcoin miners. Because it is the people and companies that produce bitcoin, the halving will mean their work yields far less reward than before.
Miners compete with each other all over the world, all the time. The bitcoin network gives these miners complex mathematical problems, which the mining computers work to solve. When one of these miners solves a problem, it is recorded in the blockchain and the network creates a reward of new bitcoin, which goes to the miner.
It is a profitable venture, but it becomes less so as time goes on. For context, since bitcoin’s inception, these halving events have occurred every four years. The first bitcoin miners earned 50 coins for their work. When the first halving happened, they would only earn 25 bitcoin. After three halvings, miners now earn just 6.25 bitcoin per block. Come this weekend, they will earn only 3,125 per block, which equates to more than $194,000 at current prices.
Bitcoin prices are likely to see a boost
Now that you understand the mechanics of the halving, it may be easier to see the effect it may have on bitcoin prices.
For bitcoin investors, the production of new coins in half creates a bottleneck for supply and demand. In fiat currency terms, this would be similar to the US Mint suddenly deciding to halve the volume of money printing every four years, causing the value of the US dollar to go through the roof.
To further demonstrate how halving could send bitcoin prices higher, imagine the bump in value the USD would experience if it were a finite currency. There will only be about 21 million bitcoins ever mined. As bitcoin adoption continues to increase, the digital asset will increase in scarcity, and its price will presumably rise accordingly. The production of bitcoin over time is intended to help scale up its adoption, but the slowing of the influx of new bitcoin into the market will keep that demand high regardless.
Given these factors as well as historical context, it is likely that a price rally will follow the incoming halving event. Previous halving events have proven this, with each previous halving event preceded by staggering price increases. In 2020, for example, bitcoin prices rose from $8,610 to $11,588 in just three months.
Keep in mind that this upswing tends to occur in the months following a halving event, rather than immediately afterward. A recent JPMorgan report said the price of bitcoin could fall in the immediate aftermath of the halving, mainly due to the continued outflow of money from bitcoin investments such as ETFs.
The energy consumption of bitcoin will rise
There are many valid concerns about the energy consumption of crypto mining. The energy required for bitcoin mining alone could power a mid-sized country year-round. In America, crypto mining consumes almost 2% of the country’s power consumption. This blackout is a big part of the reason why China banned the practice altogether.
The upcoming halving event will only make this situation worse, as crypto miners will do the same amount of work for half the reward. Estimated differently: it would take twice as much energy to mine bitcoin now.
However, there is a bit of nuance to this fact. As bitcoin mining becomes less profitable, miners will drop out of the competition. Fewer miners means fewer mining problems, which in turn means less energy consumption. In theory. If bitcoin prices skyrocket as most expect with the halving, miners won’t be prompted to stop mining, but instead could be more galvanized if the asset’s price closes back to its all-time high.
Calls for bitcoin utility will grow louder
Bitcoin is a polarizing topic, especially when its price soars like in 2024. At times like this, bulls and bears are at their most vocal, meaning even louder calls for bitcoin to become more useful as a true currency emerges. can come
Many bitcoin bulls have come to terms with bitcoin’s lack of practical use, viewing it instead as a store of value like gold. Still, there is hope among that crowd that the digital asset will become a useful currency that can one day compete with fiat money like the USD.
Bears are also demanding that bitcoin find its use case. Many crypto-skeptics take exception to the idea that bitcoin is a store of value, and not a currency, arguing that it has no real value that lends credence to its price. So, until bitcoin develops some kind of practical use, this criticism of the coin will continue.
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Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
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And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
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