Last weekend’s bitcoing ‘halving’ event was the first in almost four years, and began a new chapter for the world’s largest cryptocurrency and the scale at which it is mined.
The past few months have seen a meteoric rise in the price of bitcoin, with the launch of spot price ETFs in the US driving gains to new record highs above $70,000.
Bitcoin’s price has fallen back slightly from its peak of $73,805.27 in March, reflecting broad risk asset price volatility amid rising tensions in the Middle East. But investors were braced for the asset’s first halving event since May 2020.
As of the morning of Monday, April 22, the price of bitcoin was up about 3.5 percent to $66,237 since the morning of April 20 when the halving event occurred.
This is Money looks at what bitcoin halving is, why it happened and how it could affect its value.
What is bitcoin mining?
Before understanding how halving works, it is important to know how new bitcoin enters circulation.
Bitcoin mining is the process in which transactions are made as new bitcoins enter circulation in a blockchain.
The purpose of mining is to validate transactions to prevent fraud, as well as to add new blocks to the blockchain ledger.
Bitcoin mining involves using a powerful computer to solve complex hash puzzles. The first user – or miner – to solve the puzzle is rewarded with bitcoin.
What is bitcoin halving?
In an effort to control the supply of new bitcoin, halving occurs when 210,000 blocks are mined, with the reward for successful mining reduced by 50 percent.
This happens every four years or so and helps smooth out new supply of bitcoin, which is limited to 21 million coins.
By 2140, the overall limit on the number of available bitcoins is expected to be hit.
Why does this happen?
It’s hard to know for sure why bitcoin is set up this way.
As Etoro market analyst Simon Peters points out, bitcoin creator Satoshi Nakamoto keeps a very low profile with his last public statements coming in 2010.
Many believe Nakamoto may not even exist and the name is a pseudonym used by the original creator – or creators – of bitcoin.
Peters says ‘the most logical theory’ is that by gradually reducing the amount of new coins entering circulation, ‘halving helps increase the value of the network over time’.
He adds: ‘This month’s halving [saw] the reward drop from 6.25 to 3.125 bitcoin per block, meaning that the annual supply inflation rate will effectively drop from 1.7 percent to 0.84 percent.’
How could halving affect the price of bitcoin?
Fineqia International CEO Bundeep Rangar told This Is Money that bitcoin halving events have “historically been associated with significant price increases.”
READ MORE: What you need to know before buying Bitcoin: Our experts share the essential tips for investing in the cryptocurrency
He explained that the reduction in the rate of new coin creation leads to a decrease in selling pressure on miners.
This can therefore contribute to a supply shortage and drive up prices if demand remains constant or increases.
Coinpass CEO Jeff Hancock said halving events are typically associated with “volatility and interest” in the bitcoin market.
But Hancock expects the next four-year cycle to be different to the last.
He says: ‘We are currently in a high inflation, high interest rate environment. The bitcoin market has matured from a hobby for crypto enthusiasts to a true asset with institutional interest.’
Etoro’s Peters adds that many in the crypto community believe this month’s halving could push the price of bitcoin into the six-figure mark.
He says: ‘The last bitcoin halving happened in May 2020, when the price was around the £7,000 mark, a tiny fraction of what it is today.
With investor interest in bitcoin already rekindled earlier in the year by the approval of spot ETFs, many in the crypto community believe that this month’s halving could fuel even more positive sentiment around bitcoin and push the price towards the $100,000 mark can push.’
After this event, when is the next halving likely?
While it is difficult to say when exactly this date will occur, Peters estimates that it will likely occur by the end of the first quarter of 2028.
Fineqia’s Rangar added: ‘Given that each block is mined approximately every 10 minutes, and with an average of 144 blocks per day, the next halving should occur approximately four years from the date of the current halving event.’
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.
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.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
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.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
UnCirculars – Cutting through the noise, delivering unbiased crypto news
