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The available supply of fiat currencies rises and falls under the watchful eyes of national central banks, but the total supply of Bitcoin is fixed and immutable.
Many are unaware that the supply of their local currency can change drastically at the drop of a hat. Following the COVID-19 pandemic, central banks bolstered their local economies worldwide by flooding the financial system with newly minted fiat currency. Incredibly, more than one-fifth of all US Dollars in circulation were created in 2020 alone.
While the excessive ‘money printing’ was a short-term measure to keep the global economy from collapsing, it was not without long-term effects. High inflation, driven by the increase in the supply of fiat currency, has impacted many economies around the world and has caused a rapid increase in the cost of living for people globally. The widespread printing of money has also caused many to doubt the value of their local currency and led many to scarce assets, such as real estate, commodities and cryptocurrencies, to gain value against fiat currencies, such as the Australian dollar.
There will only ever be 21 million Bitcoin. Presently, over 19.66 million bitcoins have already been mined, leaving just under 1.4 million left before the full 21 million have been brought into circulation. The Bitcoin protocol periodically reduces the number of new coins miners earn in a process called halving.
“One of the most important features of Bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs.
The halving’s role in controlling the supply of new Bitcoins is one of the reasons the world’s most popular cryptocurrency is seen as a store of value that’s more akin to gold than a fiat currency.
What Is Bitcoin Halving?
Bitcoin halving is a pre-programmed event that occurs approximately every four years, reducing the block reward for miners by half. This mechanism reduces the rate at which new Bitcoin’s enter the circulating supply.
The halving policy was written into Bitcoin’s mining algorithm 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.
At the moment, Bitcoin has an inflation rate of less than 2%, which will decrease to less than 1% following the halving in April 2024, says David Weisberger, CEO of trading platform CoinRoutes. That’s looking pretty good compared with the 4.1% annual inflation that Australian recorded for the year to 2023.
“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. “Increasing demand at a time when supply is constrained has a positive impact on price, which can make bitcoin alluring to investors.”
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How Does Bitcoin Halving Work?
A decentralised network of validators verifies all Bitcoin transactions in a process called mining. They are paid 6.25 BTC when they are the first to verify a block of transactions, using complex mathematics to add it to the Bitcoin blockchain as part of its proof-of-work mechanism.
At the current bitcoin price, 6.25 BTC is worth about $US410,000 as of March 2024, a decent incentive for miners to keep adding blocks of bitcoin transactions.
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.
The Upcoming Bitcoin Halving in April 2024
The next Bitcoin halving is scheduled to occur around April 20, 2024, when the Bitcoin blockchain reaches block 840,000. This event has been highly anticipated by investors and traders, as it marks a significant milestone in Bitcoin’s journey and could potentially impact its price and the overall cryptocurrency market.
As the halving approaches, trading volume on centralised exchanges has skyrocketed in the past two months as investors and traders position themselves for the event. Historically, there is a lot of Bitcoin price volatility leading up to and after a halving event. However, the price of Bitcoin typically ends up significantly higher a few months after.
Experts have varying opinions on the potential impact of the upcoming halving. Some believe that the reduced supply of new coins, coupled with steady or increasing demand, could lead to a significant price appreciation. Others caution that reduced mining activity due to lower rewards might cause the price to level off.
While the upcoming halving is an important event, it is just one of many factors that influence Bitcoin’s price.
When Was the First Bitcoin Halving?
The first bitcoin halving occurred in November 2012. The following halving was in July 2016, and the most recent halving was in May 2020.
The mining reward, or subsidy, started at 50 BTC per block when Bitcoin was created 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 earn transaction fees paid by users transacting on the blockchain.
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 occurs 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.
Activity is also spiking on the Bitcoin blockchain following the creation of new Bitcoin-based financial primitives, such as decentralised applications, increasing transaction fees collected by miners. If the chain experiences an increase in activity, the transaction fees alone could be enough to incentivise miners stick with Bitcoin even in the event that BTC prices do not increase after the next halving.
The Next Halving and Beyond
The Bitcoin protocol is designed to trigger a halving event after every 210,000 blocks are mined, which occurs roughly every four years. While the excitement surrounding the imminent halving is palpable, many investors are already looking ahead to the next one, slated to take place in 2028.
The predictable nature of Bitcoin halvings, designed to minimise shock to the network, allows investors to plan their strategies well in advance.
As the current halving draws near, it’s essential to remember that while halving events have historically been bullish for the cryptocurrency after initial volatility subsides, many other factors influence Bitcoin’s price. Some experts, like Baker, advise caution, noting that reduced mining activity due to the decreased block reward could potentially cause the price to stabilise.
“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.”
With the 2024 halving just days away and the 2028 halving already on the horizon, the Bitcoin community eagerly awaits the impact of these events on the cryptocurrency’s journey towards mainstream adoption and recognition as a decentralised store of value.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.
Frequently Asked Questions (FAQs)
Is Bitcoin halving in 2024?
Yes, the Bitcoin network is set for a halving event in April 2024. This is a significant and scheduled occurrence within the Bitcoin protocol, happening approximately every four years. The halving event is integral to Bitcoin’s design, aimed at reducing the rate of new Bitcoins entering circulation, thus influencing the overall supply dynamics of the cryptocurrency.
Does Bitcoin halving increase the price?
Theoretically, the Bitcoin halving event reduces the rate at which new Bitcoins are created and, as a result, can potentially drive up the price due to the reduced supply of new coins. This is based on the basic principles of supply and demand: if demand remains constant while supply decreases, the price should increase. Historically, Bitcoin’s price has tended to rise following halving events, although many other factors are at play in the market, and this pattern is not guaranteed to hold.
Is Bitcoin halving good or bad?
Whether Bitcoin halving is good or bad tends to depend on perspective. For miners, it can be seen as potentially bad in the short term because their rewards for mining new blocks are cut in half. If the price of Bitcoin doesn’t rise to compensate for the reduced rewards, mining could become unprofitable for some.
On the other hand, halving can be seen as good for investors because it reduces the supply of new bitcoins, which could lead to an increase in price if demand remains strong. Moreover, halving events are predictable and built into the Bitcoin protocol, contributing to bitcoin’s scarcity and deflationary nature, key attributes attracting many bitcoin investors.
What is the price of Bitcoin after 2024 halving?
Historically, the price of Bitcoin has generally increased significantly in the months and years following a “halving” event, where the creation of new bitcoins is halved. After the first halving in November 2012, Bitcoin rose from $US12 to over $US1,150 in 2013. The second halving saw Bitcoin rise from $US650 to almost $US20,000 in 2017 and the third from $US8,500 in 2020 to over $US65,000 in late 2021.
The price effects of the halving are never generally immediate, and with many other influences on Bitcoin’s price, it is impossible to say how much the halving directly affects the price of BTC. While past trends are interesting, they don’t guarantee future results. Investing in Bitcoin carries risk, so doing your own research and potentially seeking financial advice is important.
How many Bitcoin halvings are left?
Bitcoin halvings occur approximately every four years, or every 210,000 blocks. The halving continues until the block reward becomes less than one Satoshi, the smallest unit of Bitcoin (0.00000001 BTC). The last bitcoin is expected to be mined around the year 2140, after which no new bitcoins will be created. This means that 30 more halvings could be expected if the algorithm remains unchanged.
Will Bitcoin go up or down after halving?
The impact of Bitcoin halving on its price is a topic of much speculation. Historically, Bitcoin has experienced a notable increase in value following past halving events. For instance, its price escalated significantly after the first halving in 2012, and similar patterns were observed in subsequent halving in 2016 and 2020. This trend is often attributed to the reduced rate of new coin creation, which, according to supply and demand principles, could lead to price increases if demand remains steady or grows.
However, it’s important to remember that a multitude of factors influence the cryptocurrency market, and past trends do not guarantee future results. Therefore, while historical data points to potential value increases post-halving, the market response in 2024 remains uncertain.
Should I Buy Bitcoin Before or After Halving?
Deciding whether to buy Bitcoin before or after a halving event requires consideration of potential market reactions. Some investors choose to buy before the halving event takes place in anticipation of price increases as the supply side of the market tightens. Others prefer to wait until after the event, aiming to capitalise on post-halving price adjustments and potentially lower prices due to initial sell-offs after the event occurs.
The cryptocurrency market is unpredictable, and while historical trends can provide insights, they do not guarantee future results. Investing in Bitcoin, whether before or after a halving, should be based on a comprehensive understanding of the market and your financial goals.
How much did Bitcoin go up after the last halving?
Bitcoin’s price has historically risen significantly after each halving event. After the first halving in November 2012, Bitcoin’s price increased from approximately $US12 to over $US1,150 in 2013. Following the second halving in 2016, Bitcoin’s price surged from around $US650 to nearly $US20,000 by the end of 2017. The most recent halving, which occurred in May 2020, saw Bitcoin’s price climb from about $US8,500 to an all-time high of over $US69,000 in November 2021.
How long after halving does Bitcoin peak?
Based on historical data from the previous three halvings, Bitcoin’s price typically reaches its peak approximately 18 months after the halving event.
However, it’s important to note that past performance does not guarantee future results, and the cryptocurrency market is highly volatile and influenced by various factors beyond the halving events. Investors should always conduct thorough research and exercise caution when making investment decisions.
