On Friday, April 19, a seismic shift to bitcoin’s underlying foundations will occur, changing not only how new bitcoins are created but also, some believe, the cryptocurrency’s future price trajectory.
The bitcoin halving, as it’s known, is programmed to happen roughly every four years, making this week’s event only the fourth time it’s ever happened in the digital currency’s 15-year history.
Previous halvings have preceded record price rallies, with some cryptocurrency analysts linking bitcoin’s price cycles to the quadrennial event.
With bitcoin already hitting a new high last month, the halving could potentially trigger another surge in uncharted territory. So what is it and why are some claiming this year’s halving will be historic?
The halving all stems from bitcoin’s unique digital design. Unlike traditional currencies, the number of bitcoins that will ever exist is fixed.
The mathematical code that underpins the cryptocurrency means that only 21 million bitcoins can ever be produced and no amount of quantitative easing can artificially inflate it.
More than 19 million bitcoins have already been produced through a process called mining, whereby new units of the cryptocurrency are generated by networks of computers programmed to solve complex mathematical puzzles.
However, the impending halving of bitcoin is about to make the rewards for this process considerably less worthwhile.
What is the bitcoin halving and why is it necessary?
The halving event, sometimes referred to as “the halving,” is essentially the opposite of quantitative easing — so much so that some crypto enthusiasts refer to it as quantitative easing.
As the name suggests, the halving cuts the production of bitcoin in half in such a way that the mining of the cryptocurrency generates only 50 percent of the return it used to.
It occurs approximately once every four years when 210,000 blocks have been mined, and is expected to occur on April 19. With this halving, mining rewards will drop from 6.25 bitcoins per block to 3.125 bitcoins.
The event is not determined or controlled by a centralized body. Instead, it is hardcoded into bitcoin’s underlying blockchain created in 2008 by its pseudonymous creator Satoshi Nakamoto.
Bitcoin was developed as an antidote to the perceived flaws in the established financial system, which contributed to the global crisis of 2007-2008. By cutting the supply, the halving event is designed to ensure the scarcity of bitcoin while preventing extreme price inflation.
Will this affect the price of bitcoin?
Previous halvings have resulted in sharp price increases and severe market volatility for bitcoin and other cryptocurrencies as traders and miners adjust to new production limits of the world’s most valuable virtual currency.
The halving in 2012 saw bitcoin’s value shoot up 80 times, while the 2016 halving preceded a 300 percent increase in bitcoin’s value. In the 16 months following the 2020 halving, the price of bitcoin rose by more than 600 percent.
The simplest explanation for these price increases is the basic economic principle of supply and demand: if supply suddenly drops but demand remains the same, the price will inevitably rise. But the decentralized and semi-anonymous nature of bitcoin means that it is difficult to attribute specific gains or losses to a specific event.
April’s bitcoin halving comes amid global economic uncertainty. Some analysts claim that bitcoin is becoming a safe-haven asset similar to gold, and early evidence suggests that investors may already be viewing it as an alternative store-of-value.
During the pandemic, the CEO of one of the world’s largest cryptocurrency exchanges revealed data showing an increase in deposits of $1,200 – the exact same size as the US government’s stimulus check. ,
In January 2024, bitcoin was boosted by the first ever approvals of a spot exchange-traded fund, bringing billions of dollars of institutional investment into the crypto market for the first time. This helped put bitcoin’s trajectory on a positive track – months before the halving even happens.
“Bitcoin’s momentum is now underpinned by a more mature and calculated approach with an understanding of its power from the world’s biggest institutional players,” Alex Adelman, CEO and founder of crypto app Lolli, told The Independent .
“Bitcoin’s scarcity will only increase with the upcoming bitcoin Halving. Bitcoin’s increased scarcity, coupled with continued institutional adoption, will most likely propel bitcoin to new and unprecedented price milestones.
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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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