Bitcoin’s latest ‘halving’ has arrived. Here’s what you need to know

Bitcoin’s latest “halving” took place on Friday night. Shortly after the highly anticipated event, the price of bitcoin held steady at around $63,907.

Now all eyes are on what will happen down the road. Beyond bitcoin’s long-term price behavior, which relies heavily on other market conditions, experts point to potential impacts on the day-to-day operations of the asset’s miners themselves. But, as with everything in the volatile cryptoverse, the future is hard to predict.

Here’s what you need to know. WHAT IS BITCOIN HALFING AND WHY DOES IT MATTER? Bitcoin “halving”, a pre-programmed event that occurs approximately every four years, affects the production of bitcoin. Miners use farms of noisy, specialized computers to solve complex math puzzles; and when they complete one, they get a fixed number of bitcoins as a reward. Halving does exactly what it sounds like – it cuts that fixed income in half. And when the mining reward drops, the number of new bitcoins entering the market drops. This means the supply of coins available to satisfy demand grows more slowly. Limited supply is one of bitcoin’s key features. Only 21 million bitcoins will ever exist, and more than 19.5 million of those have already been mined, leaving less than 1.5 million to draw from. As long as demand stays the same or climbs faster than supply, bitcoin prices should rise as halving limits output. As a result, some argue that bitcoin can counter inflation – still, experts emphasize that future profits are never guaranteed.

HOW OFTEN DOES HALFING OCCUR? Per bitcoin’s code, halving occurs after the creation of every 210,000 “blocks” – where transactions are recorded – during the mining process.

No calendar dates are set in stone, but they break down to about once every four years.

WILL THE IMPACT OF BITCOIN’S HALFING? Only time will tell. After each of the three previous halvings, the price of bitcoin was mixed in the first few months and ended significantly higher a year later. But as investors well know, past performance is no indicator of future results.

“I don’t know how important we can say halving is just yet,” said Adam Morgan McCarthy, a research analyst at Kaiko. “The sample size of three (previous halvings) is not big enough to say ‘It’s going to go up 500% again,’ or something.”

At the time of the last halving in May 2020, for example, bitcoin’s price stood at about $8,602, according to CoinMarketCap — and climbed nearly sevenfold to nearly $56,705 by May 2021. Bitcoin prices nearly quadrupled a year after July 2016 halving and shot up nearly 80 times more than bitcoin’s first halving in November 2012 one year later. Experts like McCarthy stress that other bullish market conditions contributed to that return.

Friday’s halving also comes after a year of sharp gains for bitcoin. As of Friday evening, bitcoin’s price stood at $63,907 per CoinMarketCap. That’s down from the record of about $73,750 hit last month, but still doubles the asset’s price from a year ago.

Much of the credit for bitcoin’s recent rally is given to the early success of a new way to invest in the asset – spot bitcoin ETFs, which were only approved by US regulators in January. A research report from crypto fund manager Bitwise found that these mock ETFs, short for exchange-traded funds, saw $12.1 billion in inflows during the first quarter.

Bitwise senior crypto research analyst Ryan Rasmussen said continued or growing ETF demand, when coupled with the “supply shock” resulting from the upcoming halving, could help further propel bitcoin’s price.

“We would expect the price of Bitcoin to have a strong performance over the next 12 months,” he said. Rasmussen notes that he has seen some predict profits as high as $400,000, but the more “consensus estimate” is closer to the $100,000-$175,000 range.

Other experts emphasize caution and point to the possibility that the gains have already been realized.

In a Wednesday research note, JPMorgan analysts maintained that they do not expect to see price increases after the halving because the event “is already priced in” — noting that the market is still in overbought conditions according to their analysis of bitcoin futures .

WHAT ABOUT MINERS? Miners, meanwhile, will be challenged to compensate for the reduction in rewards while also keeping operating costs low.

“Even if there is a slight increase in bitcoin price, (halving) a miner’s ability to pay bills can really have an impact,” said Andrew W. Balthazor, a Miami-based attorney who specializes in digital assets at Holland & Knight, said. “You can’t assume that bitcoin is just going to the moon. As your business model, you have to plan for extreme volatility.”

Better prepared miners probably laid the groundwork ahead of time, perhaps by increasing energy efficiency or raising new capital. But cracks can emerge for less efficient, struggling businesses.

One likely outcome: Consolidation. This has become more and more common in the bitcoin mining industry, especially after a major crypto crash in 2022.

In its recent research report, Bitwise found that total mining revenue fell one month after each of the three previous halvings. But those figures have rebounded significantly after a full year – thanks to increases in the price of bitcoin as well as larger miners expanding their operations.

Time will tell how mining companies fare after this latest halving. But Rasmussen is betting that big players will continue to expand and take advantage of the industry’s technological advances to make operations more efficient.

WHAT ABOUT THE ENVIRONMENT? Establishing definitive data on the environmental impacts directly linked to bitcoin halving is still a bit of a question mark. But it’s no secret that crypto-mining generally consumes a lot of energy — and operations that rely on polluting sources have raised particular concerns over the years.

Recent research published by the United Nations University and Earth’s Future journal found that the carbon footprint of 2020-2021 bitcoin mining in 76 countries is equivalent to the emissions from burning 84 billion pounds of coal or managing 190 natural gas -powered power plants. Coal met the largest share of bitcoin’s electricity needs (45%), followed by natural gas (21%) and hydropower (16%).

Environmental impacts of bitcoin mining largely come down to the energy source used. Industry analysts maintained that the drive to use more clean energy has increased in recent years, coinciding with increasing calls for climate protection from regulators around the world.

Production pressure can lead to miners looking to cut costs. Before the latest halving, JPMorgan warned that some bitcoin mining companies may want to “diversify into low energy cost regions” to deploy inefficient mining rigs.