The Bitcoin Halving Explained: Why It Matters For Investors - Lia Psoma
Evangelia Psoma, completed her studies at the University of Fine Arts of St. Etienne in France, and obtained the National Diploma of Art Plastique
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The Bitcoin Halving Explained: Why It Matters For Investors

what is bitcoin halving

The last halving took place in May 2020, when bitcoin was priced at around $8,750. Six months after the halving, bitcoin’s price grew 79%, and a year later it was up a whopping 547%. Halving is meant to slow the supply of coins as it approaches its total supply, which is capped at 21 million coins. The built-in mechanism mimics the scarcity of gold and ensures that bitcoin mining becomes more expensive over time. Bitcoin BTC distinguishes itself from conventional, central bank regulated currencies by operating on a fixed supply. Specifically, only 21 million bitcoins will ever exist, with just under 2 million yet to be mined.

This acts as a way to simulate diminishing returns, theoretically intended to raise demand. Bitcoin has gone through three halvings in its history, and has rallied in the months after each halving. Frances Yue covers the cryptocurrency market for MarketWatch. Past halvings took place in November 2012, July 2016, and May 2020. The next halving is projected to take place some time in April 2024. The goal of halvings is to stabilize bitcoin’s ability to act as a store of value.

In the past decade, Bitcoin’s exponential increase in value has delayed the discussion about transaction fees; the price tag of over $40,000 per BTC has continued to make mining a prosperous endeavor. Bitcoin investors might be afforded some peace of mind knowing Bitcoin won’t reach its cap during our lifetime. Concern among Bitcoin users is that once the limit is reached, transaction fees may not be enough incentive for Bitcoin miners to continue working. Without miners validating transactions, network security likely would suffer, and Bitcoin could collapse. A decentralized network of validators verify all Bitcoin transactions in a process called mining. They are paid 6.25 BTC when they are the first to use complex math to add a group of transactions to the Bitcoin blockchain as part of its proof-of-work mechanism.

The bitcoin reward is a byproduct of the mining process that acts as an incentive to participate in securing the blockchain. This run-up is different from bitcoin’s historical pattern before halving, according to Martin Leinweber, digital-asset product strategist at MarketVector Indexes. Historically, bitcoin’s performance has been relatively muted in the two to three months before halving, Leinweber noted. Halvings are scheduled to happen after every 210,000 blocks that are mined — or about every four years — until the maximum supply of bitcoin is all released. However, those thinking about buying bitcoin based on a halving-centric strategy should be mindful of potential risks. The next halving could always be the first where bitcoin’s price subsequently falls rather than rises.

These exchange-traded funds tied to the price of bitcoin allowed investors to enter the bitcoin game without the risk of directly buying the still controversial cryptocurrency. So-called miners collect information about transactions and log them in a ledger called a blockchain. These miners use computers to perform vast numbers of calculations with the aim of completing a cryptographic problem, consuming about 0.7 per cent of electricity globally in the process.

Sign up for an account in minutes to buy Bitcoin with 20-plus fiat currencies by credit card or bank transfer. Our partners cannot pay us to guarantee favorable reviews of their products or services. “One of the most important features of Bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs. Here’s everything you need to know about the upcoming halving event. An upcoming technical event known as “halving” is set to keep bitcoin surging even further in the coming months. More than $6 billion have entered the market since spot bitcoin ETFs began trading in the U.S. this year.

Securities Exchange and Commission approved 10 bitcoin ETFs for the first time in history. When the Bitcoin network first launched in 2009, the mining reward (i.e., the amount a miner was paid for adding one group of transactions to the blockchain) was 50 BTC. The first halving took place in 2012, cutting the reward to 25 BTC.

What Is Bitcoin Halving and How Does It Affect BTC Price?

Financial planners commonly recommend traditional investments like S&P 500 index funds, which offer less risk. Of course, the implications of bitcoin’s halving could be baked into its current price, since the imminent halving is widely known. But an upcoming event known as halving could that push price growth further. Alternatively, Bitcoin can be traded on the Exchange. Users can deposit crypto to the Exchange in order to trade BTC with deep liquidity and low fees. Learn about the four phases of the Bitcoin and crypto market cycle in this article.

what is bitcoin halving

For example, on the day of the 2012 halving, its price was roughly $12. Following the halving, it entered a strong uptrend, hitting $266 by April 2013. Similarly, on the day of the May 2020 halving, its price was roughly $8,700. After the halving, it entered another strong uptrend that ultimately topped out at roughly $69,000.

Bitcoin creator Satoshi Nakamoto dismissed early climate concerns

Bitcoin has gone through three halving events, most recently in 2020. At the current rate, about 900 BTC are released as a mining reward each day. The next halving is expected to occur around fxchoice assets April 2024, and the mining reward will be reduced to 3.125 BTC per block, or 450 BTC per day. Though scarcity could spike bitcoin’s price, a decrease in mining activity may reduce it.

  1. Although anyone can participate in Bitcoin’s network as a node as long as they have enough storage to download the entire blockchain and its history of transactions, not all of them are miners.
  2. After approval, the transaction is appended to the existing blockchain and broadcast to other nodes.
  3. This periodic decrease in the rate of bitcoins issued into circulation is called ‘Bitcoin halving’.
  4. Users can deposit crypto to the Exchange in order to trade BTC with deep liquidity and low fees.
  5. Ultimately, the price of Bitcoin is determined by a variety of factors.

Mining confirms the legitimacy of the transactions in a block and opens a new one. Nodes then verify the transactions further in a series of confirmations. This process creates a chain of blocks containing information, forming the blockchain. While money can be made on bitcoin’s price swings, past performance doesn’t guarantee future success. There are no guarantees that it will retain any of its current value, either.

Why Are the Halvings Occurring Less Than Every 4 Years?

We believe everyone should be able to make financial decisions with confidence. Enjoy zero crypto deposit fees and industry’s best fee rates. The somewhat predictable nature of Bitcoin halvings was designed so that it’s not a major shock to the network, fxcm review experts say. In just two months, its price has soared 40% to more than $62,000, putting it in striking distance from its all-time high of about $69,000. To understand a Bitcoin halving, you must first know how the Bitcoin network operates.

Does the Halving Affect Bitcoin’s Price?

At that point, there will be 21 million BTC in circulation and no more coins will be created. While there are many other factors influencing Bitcoin’s price, it does seem that halving events are generally bullish for the cryptocurrency after ifc markets review initial volatility eases. This rewards system will continue until about 2140, when the proposed limit of 21 million coins is reached. At that point, miners will be rewarded with fees for processing transactions, which network users will pay.

The reward, or subsidy, for mining, started out at 50 BTC per block when Bitcoin was released in 2009. The amount drops in half each time a new halving takes place. For instance, after the first halving, the reward for Bitcoin mining dropped to 25 BTC per block. The Bitcoin algorithm dictates halving happens based on a certain creation of blocks. Nobody knows exactly when the next halving will occur, but experts point to May 2024 as an anticipated date. The blockchain works like a ledger in which every bitcoin transaction is stored in what is called a block.

For example, if blocks consecutively average 9.66 minutes to mine, it would take about 1,409 days to mine the 210,000 blocks required (four years is 1461 days, including one day for a leap year). Each full node—a node containing the entire history of transactions on Bitcoin—is responsible for approving or rejecting a transaction in Bitcoin’s network. To do that, the node conducts a check to ensure the transaction is valid.

Mining is used to permanently add transactions to the blockchain without the interference of any centralised entity. Miners are incentivised to secure the network by spending resources (mining) and subsequently rewarded with bitcoins. Back in 2012, the reward was 25 bitcoins per block, and in 2016, it decreased to 12.5 bitcoins per block. As of March 2023, miners are rewarded 6.25 bitcoins per block mined.