Bitcoin is one of the most interesting financial assets that investors are currently putting their money into. As the original and most popular cryptocurrency, it’s seen meteoric price rises over the past few years, although there have been plenty of crashes too. The highly volatile price makes it a risky endeavour and keeps some investors away, but many are drawn to it. Historically, Bitcoin price has moved through cycles, based around an event called the halving.
Approximately every four years, Bitcoin undergoes a “halving”, with the next one due to take place between April and May 2024. In previous cycles, the halving has resulted in a significant price increase, and many experts believe that this pattern will continue. But what exactly is the halving, and what does this mean for the future of Bitcoin? Find out more by reading on.
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Tue14 Oct. 2024
What is the Bitcoin Halving?
The Bitcoin blockchain is maintained by a process known as miners. Computers on the Bitcoin network process transactions to add new blocks to the chain, which is known as mining. This takes a lot of computational power, and the modern mining process is performed by specialised computers known as application-specific integrated circuits (ASICs).
Each time a new block is created or “mined”, it produces a reward in Bitcoin, which is collected by the miner that completes the transaction. The cost of purchasing ASICs and the power used to run them is offset by the block rewards, making mining profitable. However, the size of the rewards is halved every four years. As a result, mining essentially becomes more difficult, with miners needing better ASICs to reap the same rewards.
Only 21 million Bitcoin will ever be createdby created and the Bitcoin blockchain is coded in a way to halve the amount of rewards that miners receive after 210,000 new blocks have been created. Historically, this takes around four years, and so far, there have been three halvings. The halving process will continue until all Bitcoin hashave been mined, which is predicted to happen in 2140.
How Has the Halving Affected Bitcoin’s Price?
The big price increases are the main reasons why Bitcoin has garnered so much attention from media all over the world. Typically, these price rises come directly after a halving event, with the increased difficulty of mining leading to lower supply and, therefore, less selling pressure. In the year after the very first halving, Bitcoin’s price rose from around $12 all the way to $900.
Although past performance is never a guarantee of what will happen in the future, this pattern has continued with other halvings. When the second halving happened in 2016, the price climbed from $600 all the way up to $2,500. The next halving saw even more impressive gains, with the price increasing from $8,000 in 2020 and reaching more than $40,000 in a year.
While the drop in supply from the miners helps to increase the Bitcoin price, the value of the cryptocurrency market is also based on psychology. Because Bitcoin becomes scarcer with each halving, the perception of its value increases, and people are more likely to buy. Once the price starts climbing, there’s more media interest and more hype, with many traders not wanting to miss out on the potential gains.
When is the 2024 Halving Happening?
The current prediction for the 2024 halving is that it will take place at some point in April. Bitcoin has already seen some price growth in the months building up to the event, partly due to anticipation of the next cycle and the fact that the SEC approved multiple applications for Bitcoin exchange-traded funds (ETFs) at the start of the year.
Of course, there’s no guarantee that the market will respond in the same way as previous halvings, but many investors aren’t taking chances and are opening up trades before it happens. Some experts also believe that the ETFs will create more buying pressure than usual, potentially leading to bigger gains.
What Does the Halving Mean for the Future of Bitcoin?
As the process of mining gets more difficult, will miners turn away from Bitcoin and towards other cryptocurrencies? So far, this hasn’t happened, and the Bitcoin network has continued to work as intended. Miners have responded by using better, more powerful computers, and the rising prices have meant that it’s still profitable.
It’s hard to say exactly what the future will hold for Bitcoin and other cryptocurrencies, but many enthusiasts and experts are bullish about it. The prevailing belief is that continued cycles will bring increasing prices and that, eventually, the cryptocurrency market will go fully mainstream. There’s still a long way to go before widespread adoption is achieved, but this next halving cycle could help the interest in Bitcoin grow.
