Bitcoin, the largest and most talked about digital asset, has been on a rollercoaster of a ride since its launch in January 2009. With a market capitalisation that reached a high of more than US$1.4 trillion (1.125 trillion) this February and volatile swings since, bitcoin has attracted lots of attention recently.
Now a hotly anticipated recurring event that happens roughly every four years is taking place: the bitcoin halving. This could have further significant impact on the value of the cryptocurrency.
To understand what the halving is and what it could mean, we have to understand how bitcoin works. Bitcoin is a digital currency that makes use of whats called blockchain technology to securely store, record and publicly publish all transactions.
It is distinct from fiat currencies, such as dollars or pounds, because it has no central authority and members of the network have equal power. Each transaction is made and recorded with the users public address, a code that enables them to remain anonymous.
Bitcoins are created by so-called miners who contribute computing power to secure the network and solve complex mathematical puzzles in order to process transaction data. These miners are then rewarded for their work with newly minted bitcoins.
The idea for bitcoin was first proposed in a white paper published online in 2008 by a mysterious individual or group using the pseudonym Satoshi Nakamoto. To combat inflation, Nakamoto wrote into the code that the total number of bitcoins will only ever be 21 million. Currently, more than 19.6 million bitcoins have been mined.
At the beginning, back in 2009, miners received 50 bitcoins for every block (unit of transaction data) they mined. But after every 210,000 blocks (roughly every four years), the reward halves.
So in 2012 the reward fell to 25 bitcoins, then to 12.5 bitcoins in 2016 and to 6.25 bitcoins in 2020. The latest halving means the reward will be just 3.125 bitcoins.
Nakamoto has never explained explicitly the reasons behind the halving. Some speculate that the halving system was designed to distribute coins more quickly at the beginning to incentivise people to join the network and mine new blocks. Block rewards are programmed to halve at regular intervals because the value of each coin rewarded is deemed likely to increase as the network expands.
But this may lead to users holding bitcoin as a speculative asset rather than using it as a medium of exchange. Additionally, the 21 million cap on the number of coins that can enter circulation makes them scarce (at least in comparison to dollars or euros), which for some people is enough to make them valuable.
So what impact does the halving have on the price? After the halving, the number of new bitcoin entering circulation shrinks. Demand should, in theory, be unaffected by this event and therefore the price should go up.
The theory is that there will be less bitcoin available to buy if miners have less to sell, said Michael Dubrovsky, a co-founder of PoWx, a crypto research non-profit. While the first halving happened in 2012, when bitcoin was less well known and quite hard to buy and sell, we can learn from the subsequent two halvings.
The second halving on July 16 2016 was highly anticipated. The price dropped by 10%, but then shot back up to where it had been before. Although the immediate impact on the price was small, bitcoin did eventually respond and some argue that the 2017 bull run when the market boomed was a delayed result of the halving.
Beginning the year around US$900, by the end of 2017 bitcoin was trading above US$19,000. The third halving in 2020 happened during a bullish period for bitcoin and it continued to rise to more than US$56,000 in 2021.
These few data points are not enough however to offer any concrete causal relationship or trend. But we do know that instantly miners rewards are halved, meaning their revenue immediately halves and their profit margins are severely affected. Consequently, unless there is a price appreciation, many miners may become unprofitable and could cease the practice.
Bitcoins scarcity is arguably one of its most significant characteristics, especially in a time of high inflation, quantitative easing and high interest rates. With the real value of fiat currencies falling, bitcoins limited supply is an attractive feature and can be reassuring for investors.
Bitcoin hit an all-time high in February following the approval of bitcoin exchange-traded funds, which effectively make it easier for retail investors and big banks to invest in bitcoin.
This, coupled with a more favourable regulatory environment on the horizon and the fact that it is becoming more integrated in the financial system, means bitcoin may continue on the rise it has experienced in 2024 so far.
Read more:
- Bitcoin Millionaire, Originally Funded by Grandmother's $1245 Gift, Seeks New Cryptocurrency Investment Options - Analytics Insight - December 6th, 2023 [December 6th, 2023]
- Bitcoin Tops $41,000 for First Time in 20 Months - PYMNTS.com - December 6th, 2023 [December 6th, 2023]
- Evolving threats in cryptocurrency: The outdated wallet dilemma | Opinion - crypto.news - December 6th, 2023 [December 6th, 2023]
- Premier Cryptocurrency Selections For 2023: VC Spectra, Terra LUNA, And dYdX - The Crypto Basic - December 6th, 2023 [December 6th, 2023]
- Why is the crypto market down today? - Cointelegraph - December 6th, 2023 [December 6th, 2023]
- 'Fugitive' Spanish aristocrat behind North Korea cryptocurrency conference arrested - The Record from Recorded Future News - December 6th, 2023 [December 6th, 2023]
- Beyond Bitcoin and Dogecoin: Top Cryptocurrency Investments to Watch in 2023 - Finbold - Finance in Bold - December 6th, 2023 [December 6th, 2023]
- Timing The Market: Is A New Cryptocurrency Rivaling Solana And Polkadot For Investment? - The Crypto Basic - December 6th, 2023 [December 6th, 2023]
- Take Control of Your Cryptocurrency Security with BTC Mixing - Medium - December 6th, 2023 [December 6th, 2023]
- Bitcoin extends gains to above $43K; crypto-linked stocks climb (Cryptocurrency:BTC-USD) - Seeking Alpha - December 6th, 2023 [December 6th, 2023]
- What Is the Role of Cryptocurrency in the Field of Online Casinos? - Live Bitcoin News - December 6th, 2023 [December 6th, 2023]
- Cryptocurrency Industry Spends Record $18.96 Million in Federal Lobbying So Far in 2023 - Cryptonews - December 6th, 2023 [December 6th, 2023]
- What To Expect From Bitcoin and Crypto Markets In 2024 - Investopedia - December 6th, 2023 [December 6th, 2023]
- The Role of Cryptocurrency in the Insurance Industry: Claims Processing, Risk Management, and so on - Robotics and Automation News - December 6th, 2023 [December 6th, 2023]
- Shiba Inu Flips LTC and DAI to Become 16th Biggest Cryptocurrency By Market Cap - The Crypto Basic - December 6th, 2023 [December 6th, 2023]
- First-of-its-kind cryptocurrency banking coming to Brazil - InvestorsObserver - December 6th, 2023 [December 6th, 2023]
- What is market manipulation in cryptocurrency? - Cointelegraph - December 6th, 2023 [December 6th, 2023]
- Binance Tops PYMNTS' Provider Ranking of Crypto Wallets - PYMNTS.com - December 6th, 2023 [December 6th, 2023]
- Boise Man Sentenced for Role in Conspiracy to Use Cryptocurrency to Launder Drug Proceeds - bigcountrynewsconnection.com - December 6th, 2023 [December 6th, 2023]
- Coinbase Slips Seven Spots in Latest Ranking of Crypto Apps - PYMNTS.com - December 6th, 2023 [December 6th, 2023]
- Bitcoin's price dynamics: Unraveling the cryptocurrency's volatility - VentureBeat - December 6th, 2023 [December 6th, 2023]
- Celsius waiting to unstake $470M in Ethereum amid bankruptcy - CryptoTicker.io - Bitcoin Price, Ethereum Price & Crypto News - January 8th, 2024 [January 8th, 2024]
- Why Bitcoin ETF Approval Will Not Be a 'Sell the News' Event Analysts - BeInCrypto - January 8th, 2024 [January 8th, 2024]
- Introduction Discover the exciting world of Coincertik, a groundbreaking cryptocurrency project - Medium - January 8th, 2024 [January 8th, 2024]
- Crypto Price Today: BTC Above $43k; Altcoins Landed in Reds - Analytics Insight - January 8th, 2024 [January 8th, 2024]
- NFT Investments to change its name to Phoenix Digital Assets - FX News Group - January 8th, 2024 [January 8th, 2024]
- Solana (SOL) Outperforms Ethereum (ETH) by This Overlooked Criterion, Analyst Says By U.Today - Investing.com - January 8th, 2024 [January 8th, 2024]
- REPORT | CryptoCurrency Hacks Declined by Over 50% in 2023 with Nearly $30 Million Per Incident - bitcoinke.io - January 8th, 2024 [January 8th, 2024]
- The Rising Contender in Cryptocurrency: Could This New Token Surpass NEAR Protocol and BNB? - BSC NEWS - January 8th, 2024 [January 8th, 2024]
- Crypto Investment Products Saw $2.2B of Inflows in 2023: CoinShares - CoinDesk - January 8th, 2024 [January 8th, 2024]
- Why the Crypto Market Is Down Today - BeInCrypto - January 8th, 2024 [January 8th, 2024]
- Top 10 Cryptocurrencies In January 2024 Forbes Advisor UK - Forbes - January 8th, 2024 [January 8th, 2024]
- Why is The Cryptocurrency Market Down Today? - Watcher Guru - January 8th, 2024 [January 8th, 2024]
- Why cant more Texans profit like Bitcoin miners for using less power? - The Texas Tribune - January 8th, 2024 [January 8th, 2024]
- Which Cryptocurrency Will Kindle the First Bull Run of 2024? Investors Are Betting on Green Bitcoin - NewsBTC - January 8th, 2024 [January 8th, 2024]
- SEC expected to approve new bitcoin ETFs : The Indicator from Planet Money - NPR - January 8th, 2024 [January 8th, 2024]
- Here's what happened in crypto today - Cointelegraph - January 8th, 2024 [January 8th, 2024]
- Bitcoin Price Prediction: Can Bitcoin Reach $1000000 by 2025? Forbes Advisor INDIA - Forbes - January 8th, 2024 [January 8th, 2024]
- Cardano Falls 10% In Rout By Investing.com - Investing.com - January 8th, 2024 [January 8th, 2024]
- Why Is Crypto Going Up Today: January 2024 - Forbes - January 8th, 2024 [January 8th, 2024]
- Top 10 cryptocurrencies of 2024 - USA TODAY - January 8th, 2024 [January 8th, 2024]
- CoinShares Report: 2023 Became Third-Largest Year for Cryptocurrency Inflows - CryptoPotato - January 8th, 2024 [January 8th, 2024]
- Coinbase Plans to Offer Crypto Derivatives in Europe - PYMNTS.com - January 8th, 2024 [January 8th, 2024]
- $1.2 million mysteriously deposited in missing Bitcoin founder's abandoned wallet money deposited anonymously in ... - Tom's Hardware - January 8th, 2024 [January 8th, 2024]
- How to Build Your Own Cryptocurrency from Scratch - Analytics Insight - January 8th, 2024 [January 8th, 2024]
- Over $24 Billion in Cryptocurrency Received by Illicit Addresses in 2023, Down 40% from 2022: Chainalysis - Cryptonews - January 19th, 2024 [January 19th, 2024]
- How a 'crypto drainer' tricked people into handing over $80 million in assets worldwide - The Record from Recorded Future News - January 19th, 2024 [January 19th, 2024]
- Bitcoin maintain Its dominance in the cryptocurrency market in 2024? - CXOToday.com - January 19th, 2024 [January 19th, 2024]
- VeChain X Twitter Hacked Amidst Cryptocurrency Market Surge - Crypto Times - January 19th, 2024 [January 19th, 2024]
- CoinbarPay Introduces a Brand New Ecosystem Cryptocurrency on XDB CHAIN to Expand the Adoption of Crypto ... - CryptoPotato - January 19th, 2024 [January 19th, 2024]
- HashKey reaches unicorn valuation after raising US$100 million - South China Morning Post - January 19th, 2024 [January 19th, 2024]
- Edmonton man and his cryptocurrency company sanctioned for breaching Alberta securities laws - Yahoo News Canada - January 19th, 2024 [January 19th, 2024]
- Crucial Bitcoin (BTC) Resistance Is Hit, Will Shiba Inu (SHIB) Gain or Lose Zero? Cardano (ADA) in Trouble By U.Today - Investing.com - January 19th, 2024 [January 19th, 2024]
- Could This Meme Cryptocurrency Skyrocket in 2024: Analysis of New Trending Altcoin ApeMax - Finbold - Finance in Bold - January 19th, 2024 [January 19th, 2024]
- Unlocking Tomorrow-Navigating the Thrilling Frontier of Blockchain Beyond Cryptocurrency - Medium - January 19th, 2024 [January 19th, 2024]
- Binance Records $4.6 Billion in Inflows Following Settlement - PYMNTS.com - January 19th, 2024 [January 19th, 2024]
- Opening statements in trial of woman charged with financing terrorist groups in Syria through cryptocurrency - ABC News - January 19th, 2024 [January 19th, 2024]
- Cryptocurrency: Top 5 Altcoins That Could Yield Maximum Profit In 2024 - Watcher Guru - January 19th, 2024 [January 19th, 2024]
- Cryptocurrency Trader Turns $300 into $1.03 Million in 10 Days - Watcher Guru - January 19th, 2024 [January 19th, 2024]
- Fraudsters Move From Bitcoin to Stablecoins for Scams - PYMNTS.com - January 19th, 2024 [January 19th, 2024]
- Unveiling the Cryptocurrency Spark: a Journey into Fascinating Aspects of the Technology - Block Telegraph - January 19th, 2024 [January 19th, 2024]
- Chainalysis observes decrease in cryptocurrency crime in 2023 - TechTarget - January 19th, 2024 [January 19th, 2024]
- How a 27-Year-Old Codebreaker Busted the Myth of Bitcoin's Anonymity - WIRED - January 19th, 2024 [January 19th, 2024]
- Is Bitcoin Mining Profitable In 2024? Forbes Advisor INDIA - Forbes - February 12th, 2024 [February 12th, 2024]
- Free PlayZap $PZP Tokens: Your Gateway to Cryptocurrency! - Medium - February 12th, 2024 [February 12th, 2024]
- BTC Surges Beyond $48K, Reaching New Heights in Cryptocurrency Market - CoinGape - February 12th, 2024 [February 12th, 2024]
- Cryptocurrency: 3 Coins Under $0.1 That Could Turn $1 Into $10 In 2024 - Watcher Guru - February 12th, 2024 [February 12th, 2024]
- Joystream $JOY Airdrop: Your Path to Free Cryptocurrency - Medium - February 12th, 2024 [February 12th, 2024]
- Top 10 Cryptocurrencies In February 2024 Forbes Advisor UK - Forbes - February 12th, 2024 [February 12th, 2024]
- The Biden administration now requires large cryptocurrency miners to report their energy use - Engadget - February 12th, 2024 [February 12th, 2024]
- Bitcoin price predictions: How much more could it rise in 2024? - Euronews - February 12th, 2024 [February 12th, 2024]
- Ethereum experiment ERC404 is an NFT-cryptocurrency hybrid and it's already generated $87m in trades - DLNews - February 12th, 2024 [February 12th, 2024]
- 'Bitcoin Rodney' charged in Maryland, arrested with one-way ticket to UAE - The Baltimore Banner - February 12th, 2024 [February 12th, 2024]
- Seize the Opportunity: Claim r/CryptoCurrency Moons $MOON Airdrop Tokens - Medium - February 12th, 2024 [February 12th, 2024]
- Cryptocurrency mining in the US could be using as much electricity as Washington state - The Real News Network - February 12th, 2024 [February 12th, 2024]
- Top Cryptocurrency for Immediate 10x Gains in February 2024 - Finbold - Finance in Bold - February 12th, 2024 [February 12th, 2024]
- How to Stake r/CryptoCurrency Moons Using the Dappradar Platform - Medium - February 12th, 2024 [February 12th, 2024]
- Opinion: The Future of Cryptocurrency Policy: Jefferson or Xi - The Missouri Times - February 12th, 2024 [February 12th, 2024]
- Top Cryptocurrency Statistics and Trends in 2024 Forbes Advisor Australia - Forbes - February 12th, 2024 [February 12th, 2024]
- What Can You Buy With Bitcoin? - Investopedia - February 12th, 2024 [February 12th, 2024]