Due in April 2024, the next Bitcoin halving is a major talking point within the crypto space. Learn about the Bitcoin halving, how it works and why it is happening.
The Bitcoin halving is one of the most impactful events within crypto. The process follows the same principles applied by central banks, with Satoshi Nakamoto, Bitcoin’s creator, understanding that continuously creating more coins will lead to the devaluation of a cryptoasset.
Restricting the supply of new bitcoin entering the market helps to maintain a level of scarcity, cementing bitcoin’s position as a means of exchange and a store of value.
In the lead-up to a halving event, and afterwards, crypto investors typically try to take advantage of the potential opportunities that come with it.
What is the Bitcoin halving?
The halving of Bitcoin relates to a specific aspect of the Bitcoin ecosystem: the “mining” of new coins. Mining refers to the validation of information contained within a block in a blockchain.
For Bitcoin, this process involves using specialised hardware to solve complex mathematical problems. The first person to find the solution is rewarded with newly issued bitcoins.
To restrict the overall supply of the currency, the rewards received for solving this mathematical equation are halved periodically. The event that marks this change is known as “the halving,” which happens every 210,000 blocks – typically once every four years.
When is the next Bitcoin halving?
Each Bitcoin halving is scheduled to occur whenever a batch of 210,000 blocks are successfully mined. Given the current rate of production, this usually takes place over a four-year period, with the next Bitcoin halving predicted to take place in April 2024.
As mining rates are variable, it is usually only possible to know the exact date and time of the Bitcoin halving when the 210,000 block limit is closer to being reached.
For the upcoming Bitcoin halving, the total number of mined blocks will reach 840,000. When this happens, the block reward assigned to miners will fall from 6.25 BTC to 3.125 BTC per block.
Tip: Halvings will take place until all available bitcoin is successfully mined. At current rates, this will be in 2140.
| The previous three Bitcoin halvings occurred in 2012, 2016, and 2020: |
| Halving Year | Halving Date | Previous Rewards | New Rewards |
|---|---|---|---|
| 2012 | November 28th | 50 BTC | 25 BTC |
| 2016 | July 9th | 25 BTC | 12.5 BTC |
| 2020 | May 11th | 12.5 BTC | 6.25 BTC |
| 2024 | April (TBC) | 6.25 BTC | 3.125 BTC |
How does the Bitcoin halving work?
As stated above, the first miner to solve the cryptographic problem receives a bitcoin reward, incentivising them to continue securing the network, while also enabling new bitcoins to enter circulation.
The Bitcoin halving works by cutting the reward received in half, keeping the total supply of bitcoin scarce and not flooding the market with new coins. The Bitcoin halving schedule is predetermined, written into the blockchain’s code to ensure that changes are implemented when 210,000 blocks are mined.
“Coins have to get initially distributed somehow, and a constant rate seems like the best formula.”
Satoshi Nakamoto
How does the Bitcoin halving affect the market?
Historically, the Bitcoin halving has had a significant impact on the wider crypto market. The event directly impacts the supply and demand of the world’s most popular cryptoasset, with the amount of new BTC entering the market being cut in half every four years, on average.
Typically speaking, when the supply of an asset decreases, assuming the demand remains the same, or grows, its price should increase. This is what has happened to the price of bitcoin following the last three halving events.
In terms of the wider crypto market, other assets have previously shown significant correlation with bitcoin’s price movements. Therefore, the Bitcoin halving impacts bitcoin directly, as well as the value of most altcoins as a result.
How does the Bitcoin halving affect bitcoin investors?
Bitcoin’s four-year cycle, signposted by the halving process, continues to be the subject of much debate and analysis. Although there is no way of knowing definitively how the Bitcoin halving will impact bitcoin investors, most will be keenly tracking crypto prices during the pre-halving and post-halving period, looking for trading opportunities.
Because of past halving events, it is likely that increased levels of price volatility will occur around the time of the next Bitcoin halving. This volatility may encourage or discourage existing bitcoin holders to add to, or close out, positions.
In addition, as the Bitcoin halving receives mainstream attention, there is also the possibility that new retail investors will turn their attention towards the crypto sector.
Final thoughts
Although the premise of the Bitcoin halving is relatively simple, it can trigger extreme price moves and initiate long-term price trends. Interested investors should consider the increased price volatility and factor this into their risk management strategy.
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FAQs
- Do other cryptoassets have halving events?
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Yes, some other cryptoassets also experience halving events, although the Bitcoin halving is the most famous example. The halving process is an effective way of limiting the introduction of new coins into a circulating supply and has been adopted by a number of other networks, including Litecoin and ZCASH.
- How does the Bitcoin halving impact other cryptoassets?
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The price of bitcoin is the variable most influenced by the Bitcoin halving, but not every investor interested in the halving will trade bitcoin. Other cryptoassets, such as Litecoin, also undergo halving events and often experience renewed interest in the same way that bitcoin does when the halving occurs.
On the other hand, as the wider crypto market typically follows bitcoin’s price movements, at least in part, it is likely that any bitcoin price trends, as well as an influx of new investors, will impact the price of cryptoassets across the board.
- What are the risks associated with Bitcoin halving?
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The price of bitcoin typically becomes more volatile throughout the halving process as a greater number of investors take differing views on the prospects of BTC. There is often an expectation that Bitcoin will experience a growth in value, which is not guaranteed and could lead to investors over-committing funds to trades that are ultimately not successful.
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