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Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
- You could lose all the money you invest.
- The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
- The cryptoasset market is generally unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
- You should not expect to be protected if something goes wrong.
- The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.
- Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
- You may not be able to sell your investment when you want to.
- There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
- Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
- Cryptoasset investments can be complex.
- Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
- You should do your own research before investing. If something sounds too good to be true, it probably is.
- Don’t put all your eggs in one basket.
- Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here
For further information about cryptoassets, visit the FCA’s website here
Forbes Advisor has provided this content for educational reasons only and not to help you decide whether or not to invest in cryptocurrency. Should you decide to invest in cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
The 2024 Bitcoin halving occurred on 20 April, according to CoinMarketCap.
The available supply of conventional currencies rises and falls under the watchful eyes of national central banks, but the total supply of Bitcoin is fixed and immutable.
There will only ever be 21 million Bitcoin. At present, a few more than 19 million have been mined, leaving just under 2 million left to be created. The Bitcoin protocol automatically reduces the number of new coins issued with each new block in a process called halving.
One of the most important features of Bitcoin is its limited supply and issuance mechanism.
Bitcoin halving explained
The Bitcoin halving is when the reward for Bitcoin mining is cut in half. Halving takes place every four years.
The halving policy was written into Bitcoin’s mining algorithm aimed to counteract inflation by maintaining scarcity. In theory, the reduction in the pace of Bitcoin issuance means that the price will increase if demand remains the same.
“Bitcoin’s production scarcity is what defines its finiteness, and when reward goes down, supply is constrained,” says Chris Kline, chief operating officer of Bitcoin IRA.
How does Bitcoin halving work?
A decentralised network of validators verify all Bitcoin transactions in a process called mining. They are paid 3.125 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.
At the current Bitcoin price, 3.125 BTC is worth over £167,000, a clear incentive for miners to keep adding blocks of Bitcoin transactions running smoothly.
Bitcoin prices
Those blocks of transactions are added roughly every 10 minutes, and the Bitcoin code dictates that the reward for miners is reduced by half after every 210,000 blocks are created. That happens roughly every four years in periods that are often accompanied by heightened Bitcoin price volatility.
When was the first Bitcoin halving?
The first Bitcoin halving occurred in November 2012. The next halving was in July 2016, and the most recent halving was in May 2020.
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 last halving will occur in 2140. At that point, there will be 21 million BTC in circulation and no more coins will be created. From there, miners will just be paid with transaction fees.
Richard Baker, CEO of miner and blockchain services provider TAAL Distributed Information Technologies, points out that miners may shift transaction processing power away from BTC once the next halving takes place as they seek more transaction fees elsewhere to make up for lost Bitcoin revenue.
Fewer miners would mean a less secure network, experts say.
On the other hand, while the halving reduces the reward for miners, it equally lowers the supply of new coins without reducing the demand, notes Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp.
“If the economic theory holds true, which historically for Bitcoin it has, Bitcoin prices should increase dramatically in response to the supply shock,” she says. “Although, there is still debate on whether the historical price movement around each halving was a direct product of the halving.”
Higher prices would be an incentive for miners to keep processing Bitcoin transactions.
History of Bitcoin halvings
The number of new Bitcoins issued as a reward for miners who add a new block of validated transactions to the Bitcoin’s blockchain has halved every four years since 2009.
The initial reward was 50 BTC, which would be worth more than £1,000,000 today. At present, the reward is 3.125 BTC, equal to roughly £2,675,726.
Here’s how the reward has lessened every four years since Bitcoin began:
Why have we just seen a Bitcoin halving?
The Bitcoin algorithm dictates halving happens based on the creation of a certain number of blocks, with that landmark having just been reached on 19 April 2024.
Given that halving dates are based on current transaction rates, halving dates can only be predicted with uncertainty. Any acceleration of the transaction rate will bring forward the halving date, but it is likely to be several years before the next halving event.
The somewhat predictable nature of Bitcoin halvings was designed so that it’s not a major shock to the network, experts say.
But that doesn’t mean there won’t be a trading frenzy surrounding Bitcoin’s next halving.
“Historically, there is a lot of Bitcoin price volatility leading up to and after a halving event,” says Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner. “However, the price of Bitcoin typically ends up significantly higher a few months after.
While there are many other factors influencing Bitcoin’s price, it does seem that halving events are generally bullish for the cryptocurrency after initial volatility eases.
Baker says investors should be cautious about the next Bitcoin halving. Although scarcity can drive price appreciation, reduced mining activity could cause the price to level off.
“The key point for investors to consider, however, isn’t the specific dates of halving events but to focus on the growth of the network overall,” Weisberger says. “As long as the network continues to grow, the likelihood of Bitcoin fulfilling its potential as a global store of value increases.”
How to trade the Bitcoin halving
Each time Bitcoin goes through a halving, the rate of supply effectively halves too. When demand levels for an asset remain constant but supply is reduced, the asset tends to appreciate in value.
Traders may seek to exploit this dynamic by investing in Bitcoin ahead of next April’s anticipated halving, in hopes it will increase the value of their holdings.
How has Bitcoin halving impacted BTC’s price in the past?
When the first halving happened in 2012, there was a negligible effect on Bitcoin’s value, but this was in the cryptocurrency’s early days, before rampant speculation began.
In the year ahead of the second halving in 2016, however, Bitcoin went from around £170 to just over £500 (up 194%).
In the 12 months leading up to the May 2020 halving, Bitcoin rose from around £4,000 to roughly £8,000, marking a 100% increase in value.
In April 2023 Bitcoin was valued at approximately £23,000. Since then, BTC has risen to around £52,500.
While previous pre-halving periods have seen tremendous growth, early indications show this one may be different. Regardless, past performance is no indication of future results.
What’s Bitcoin’s highest ever price?
Bitcoin hit a record high of £57,014 on 11 March 2024.
Bitcoin Price
Frequently Asked Questions (FAQs)
Why does bitcoin halve?
Bitcoin was designed to halve every four years in order to maintain scarcity as a counterbalance to inflation. The idea is that reducing supply against a backdrop of sustained demand would drive BTC prices up, protecting against the way inflation devalues assets.
What happens when all 21 million Bitcoins have been mined?
Once the last of the total 21 million Bitcoins have been mined, miners who successfully add blocks of validated transactions to the blockchain will be rewarded with transaction fees, rather than newly minted BTC. It’s predicted the 21 million limit will be effectively reached by 2140.
Cryptocurrency is unregulated in the UK. The UK regulator, the Financial Conduct Authority, has repeatedly warned investors that they risk losing all their money if they buy cryptocurrency, with no possibility of compensation.
