If you have engaged in conversations with individuals who are interested in Bitcoin recently, you have likely been informed about the halving. Certain cryptocurrency enthusiasts regard the halving as a significant event with almost mystical significance: They argue that its mechanisms play a vital role in the ongoing price increase of Bitcoin. On the other hand, critics argue that the halving is more akin to a promotional tactic.
Less than 24 hours remain until the most important event in the cryptocurrency sector. This event is expected to have a major impact on the sector due to recent developments surrounding the leading digital asset. Some of these developments include the emergence of spot Bitcoin exchange-traded funds (ETFs) and the evolving regulations for digital assets. So, what is it, exactly?
A detailed Account Of What Bitcoin Halving Is
The halving traces back to the inception of bitcoin, which emerged in the aftermath of the 2008 financial crisis. The mysterious creator of the cryptocurrency, known as Satoshi Nakamoto, introduced Bitcoin in the subsequent year with the vision of establishing a global currency free from governmental or central bank influence. Satoshi emphasized that the total supply of bitcoins would never exceed 21 million, aiming to control inflation and increase the value of each bitcoin in the long run.
In contrast to the Federal Reserve’s ability to adjust the supply of dollars as needed, bitcoins are released at a predetermined and gradually decreasing rate. Satoshi established that the reward for generating new bitcoins would be halved approximately every four years during events called “halvings.” As the process of creating new bitcoins became more challenging, each bitcoin would become scarcer and more valuable, according to the theory. However, it is unlikely that the creation of new bitcoins will cease entirely for at least another century.
What Happened During Past Bitcoin Halvings?
The purpose of the halving is to increase the scarcity of bitcoin, ultimately leading to an increase in its price. This has been the case for the past three halvings. Following the initial halving in November 2012, the price of Bitcoin surged from $12.35 to $127 within five months. After the second halving in 2016, the price of Bitcoin doubled to $1,280 in just eight months. Finally, between the third halving in May 2020 and March 2021, the price of Bitcoin skyrocketed from $8,700 to $60,000.
Nevertheless, it is important to note that correlation does not necessarily indicate causation, particularly when dealing with a limited sample size. Initially, it is plausible that the timing of these surges was merely coincidental. Additionally, it is conceivable that Bitcoin’s surge is not primarily influenced by the mechanics of the halvings themselves, but rather by the narratives surrounding them. As each halving event occurs, enthusiasm builds regarding the potential of Bitcoin, prompting more individuals to invest. This surge in demand subsequently drives up the price, further fueling interest in a self-perpetuating cycle.
What Will Happen To Bitcoin During This Upcoming Halving?
The halving will likely not cause a significant movement in price on the day it happens. Part of the economic impact of the halving has likely already occurred, with investors buying Bitcoin in anticipation of the event, and the aftershocks of the halving will continue for months or years afterward, experts say.
“Given the previous history, the day-of tends to be a non-event for the price,” says Matthew Sigel, head of digital assets research at the global investment manager VanEck.
It is challenging to anticipate the future trajectory of Bitcoin after the halving due to various factors. One significant aspect is the unique economic conditions surrounding this event. Unlike previous halvings, this time bitcoin reached its peak before the halving occurred. Just last month, bitcoin surged to an unprecedented value of $70,000 before experiencing a decline. This surge was partly influenced by the emergence of bitcoin ETFs, which enabled mainstream institutional investors to speculate on bitcoin’s price without directly purchasing the cryptocurrency.
However, there are individuals with a pessimistic outlook who argue that the significant surge in Bitcoin’s value has already occurred, primarily due to the introduction of ETFs. These skeptics anticipate a decline in its price following the halving event. They attribute this projected decrease to traders adopting the strategy of “selling the news,” where they sell their bitcoin holdings to take advantage of a potential influx of eager buyers. JP Morgan forecasted in February that once the initial excitement surrounding the bitcoin halving subsides, its price could plummet to $42,000.
“Have we already created the buzz for Bitcoin before halving—or is the ETF what allows Bitcoin to make similar run-ups that we’ve seen in previous halvings?” says Adam Sullivan, the CEO of the Bitcoin mining company Core Scientific. “We don’t have to answer that question yet.”
While many bitcoin optimists swear that its price will dramatically increase in the months following the halving, it’s important to remember that bitcoin does not always behave rationally, especially during chaotic global news events. After Iran launched a missile attack on Israel on April 13, for example, rattling the global economy, bitcoin’s price plummeted 7% in less than an hour.
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Bitcoin Miners And What Will Happen To Them During The Halving
Determining the impact of the halving on average bitcoin investors is a complex task, but the halving will have a profound effect on the bitcoin mining industry. Bitcoin miners play a crucial role as the guardians of the network, protecting it from potential attacks, generating new bitcoins, and receiving financial incentives in return. However, following the halving, the rewards for miners in processing new transactions will be slashed from 6.25 bitcoin to 3.125 (approximately $200,000), resulting in a substantial and immediate decline in their revenue.
As a result, mining will become unprofitable for many smaller operations. As they fold or sell themselves to bigger operations, like Marathon Digital Holdings Inc. or CleanSpark Inc., the industry will likely consolidate. “People are going to operate in a marginally profitable environment for as long as they possibly can,” Sullivan says. “Those are folks that will probably look to get scooped up, probably in the six-to-12-month timeframe.”
But the bitcoin mining companies that weather the storm and gain market share from those who have bowed out could reap enormous rewards, Matthew Sigel says. “Miners are always the cockroaches of the energy markets; they’re very nimble,” he says. “We think the second half of the year will be very strong for bitcoin miners, as long as the bitcoin price rallies.”
