#Crypto 360
Bitcoin halving is one of the most critical phenomena that take place in the blockchain ecosystem. A halving reduces the reward for mining a Bitcoin block in half.
➔ Bitcoin halving is one of the most critical phenomena that take place in the Bitcoin ecosystem. A halving reduces the reward for mining a block to half of the reward being previously offered.
➔ The next halving in take place around April 19-24 that will reduce the reward from 6.25 BTC to 3.125 BTC.
➔ Post-halving, the price of Bitcoin will need to rise so that the mining community remains invested in the enterprise.
Crypto enthusiasts are revelling in quite a gala for the past few months as Bitcoin (BTC) soared from a little below $30K in October 2023 to slightly below $64K today. The first coin’s value rose more than 2x within a span of around four months. BTC was trading at $63,799.85 at press time.
The crypto community is now hoping for it to surpass the all-time high (ATH) of $68,789.63 that it hit in November 2021. One significant reason behind this expectation is the Bitcoin halving set to occur in the first half of 2024.
In this article, we will learn about Bitcoin halving and its potential effect on the price movement of BTC. We will also suggest ways in which miners can prepare themselves ahead of the event.
Bitcoin halving is one of the most critical phenomena that take place in the blockchain ecosystem. A halving reduces the reward for mining a Bitcoin block to half of the reward being previously offered. The mining reward consists of both a block subsidy and a transaction fee. The block subsidy is the just minted Bitcoin that is joining the crypto ecosystem for the first time; the subsidy is the larger part of the value of the mining reward. As of now, a miner successfully validating a block is rewarded with 6.25 BTC. The next halving in 2024 will reduce this reward to 3.125 BTC. Let’s understand it better.
The Bitcoin blockchain network employs a proof-of-work (PoW) consensus mechanism which requires solving the encrypted hash. The infrastructure lying behind the network consists of a huge number of nodes (or a network of mutually distrustful computer systems).
These nodes are operated by miners who compete to validate or invalidate a transaction. The miner tries to solve a cryptographic problem in order to check whether a transaction is valid or not. This way, a series of transactions belonging to a block gets validated, and a block gets added to the blockchain. One block contains 1 MB data of Bitcoin transactions.
For a successful addition of a block, the miner is rewarded accordingly for contributing to the network’s security. Bitcoin halving occurs each time 210,000 blocks are mined. Not only does it cut the mining reward in half, but also cuts the rate at which new Bitcoins are released into circulation in half. It helps with reducing the rate at which the coins are released into circulation, decreasing its supply.
Naturally, a fall in supply and a rise in demand leads to a price rise of Bitcoin like any other asset. There are more than 19.5 million Bitcoins in circulation as of now. It is expected that the total Bitcoin supply of 21 million coins will finish in 2140; i.e. the circulation of the remaining 1.5 million coins will keep occurring until 2140. The block rewards system will continue until the year. At that point of time, the block mining reward will be reduced to 1 satoshi, i.e. 0.00000001 Bitcoin.
The Bitcoin network first went public in January 2009 when Bitcoin’s creator, Satoshi Nakamoto, mined the first Bitcoin block, also called the “genesis block.” The block reward for the miners around the time was 50 BTC. The smallest unit of a Bitcoin is called a satoshi.
Image: Halving explained in numbers, by Investopedia
• The Bitcoin halving occurs each time the network is done mining 210,000 blocks. The event occurs roughly every four years.
• The first halving took place in November 2012 as 210,000 blocks were validated by then since 2009. The event reduced the block reward to 25 BTC.
• The total BTC supply was 10.5 million coins before the 2012 halving. BTC was trading below $14 in November 2012.
• By the end of June 2013, its price had risen to more than $100. Around the beginning of December 2013, it even crossed the $1k-mark for some time before falling to around $500 for the next few years.
• The second halving took place in July 2016 as another 210,000 blocks were validated during the period. This time, it reduced the block reward to 12.5 BTC.
• The total BTC supply was 15.7 million coins before this halving. BTC was trading at $650 in July 2016 when the event took place. By the end of 2016, it was trading north of $900. In December 2017, its price even hit $19k—the highest level since then.
• The third halving took place in May 2020, reducing the block reward to 6.25 BTC.
• The total BTC supply was 18.3 million coins before the third halving. In May 2020, BTC was trading around $9,000. A year later, BTC was exchanging hands above $57,000 in May 2021. In November 2021, BTC hit its all-time high (ATH) of $68,789.63.
The next halving is expected to take place around 19th-24th April 2024. It will reduce the block mining reward from 6.25 BTC to 3.125 BTC, effectively cutting it in half.
Image: BTC price movement Feb 2011 to Feb 2022, by Crypto.com
Historically, a Bitcoin halving has always led to a significant price rally—if not immediately, then over a few months. Institution entry into the Bitcoin ecosystem through the introduction of exchange-traded funds (ETFs) is also being expected the next year. We also expect more regulatory clarity around the status of BTC as a financial asset in 2024. In the US, court rulings would make things clearer. In the European Union, the Markets in Crypto-Assets Regulation (MiCA) is expected to come into complete effect by the end of the next year.
The next Bitcoin halving, in tandem with institutional BTC ETFs, is expected to lead to a significant bull run. As the competition for block rewards rises along with the price of Bitcoin, the mining community will find it more lucrative to mine the coins. Crypto analyst Rekt Capital recently put forward a theory on X, 5 Phases of The Bitcoin Halving.
• As per the theory, the pre-halving period at first is manifested by fantastic returns.
• Next, a pre-halving rally tends to take place 60 days before the halving.
• Further, a pre-halving retrace tends to take place as it happened in 2016 (38%) and 2020 (20%) due to doubt in the minds of investors.
• This is followed by multi-month re-accumulation around the Halving event as many investors quit the market, disappointed with a lack of an immediate price rally.
• The last phase is when a parabolic uptrend occurs as Bitcoin experiences accelerated growth.
Hence, we can see how a number of factors might influence the price movement of Bitcoin after the April halving.
Bitcoin halving is expected to have a significant effect on the performance of Bitcoin-related stocks. The halving will cut the mining rewards to half, it will affect the revenues of the Bitcoin mining firms. It will then affect the performance of the mining stocks also. The miners to watch out for on the stock market are Marathon Digital Holdings (MARA), CleanSpark (CLSK), Riot Blockchain (RIOT), Phoenix Group (PHX.AE), and Core Scientific (CORZ). It is expected that most mining firms will lose some of their value post the halving due to a fall in revenues. But they will recover within a fortnight.
But if Bitcoin’s price rises in tandem with the fall in mining rewards, the Bitcoin miners might very well not experience any drop in stock performance. Next, the Bitcoin holding firms need to be watched out for on the charts as the price movement of the king coin post the halving will affect the stock performance of these firms. The Bitcoin holders on the stock market you should keep an eye on are Microstrategy (MSTR), Galaxy Digital Holdings (GLXY), Tesla (TSLA), and Block Inc. (SQ). Among the factors that will influence the performance of these stocks in the price movement of the king coin post the halving.
Bitcoin trading exchanges are another kind of Bitcoin-related stocks that you should watch out for. The price movement of Bitcoin post the halving is going to be volatile which will affect the cryptocurrency’s trading volume. A rise in Bitcoin’s trading volume is expected to have a positive impact on the stock performance of Bitcoin trading exchanges. The stocks one should keep a close eye on are Coinbase Global Inc. (COIN), CME Group (CME), and Robinhood (HOOD). In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing of eleven spot Bitcoin exchange-traded funds (ETFs).
These ETFs let retail traders get a taste of the crypto ecosystem on the traditional stock exchanges, without getting directly involved with the decentralised finance (DeFi) economy. The stock performance of Bitcoin ETF issuers is therefore directly linked to the price movement of Bitcoin and the trading volume of spot Bitcoin ETFs. The Bitcoin ETF issuers to watch out for on the charts are Franklin Templeton (BEN), BlackRock Inc. (BLK), Invesco Ltd. (IVZ), and WisdomTree, Inc. (WT). Of course, you should also track the performance of Bitcoin ETFs too as they let you trade crypto on traditional exchanges.
As far as the mining community is concerned, the event has significant repercussions.
Due to high power costs needed for systems to solve cryptographic problems, BTC’s price would need to rise dramatically for mining to become lucrative for miners. Miners will struggle to remain competitive if the price doesn’t rise in lockstep with the fall in reward.
If the price of Bitcoin doesn’t rise significantly, there is a huge change that miners will quit the ecosystem. In such a scenario, the Bitcoin network may encounter a brief bottleneck as miners move to more profitable networks. But that is an unlikely scenario given the expectation that the king coin will recover even if it falters for a few weeks post the next Bitcoin halving in April.
The mining community remains hopeful as the current bull run doesn’t seem to recede. Most analysts believe the price of Bitcoin will rise to as much as $100,000 by the end of 2024, making mining a lucrative enterprise.
Bitcoin halving is a mechanism in the Bitcoin ecosystem to reduce the reward for mining a block to half of the reward being previously offered.
Bitcoin halving occurs each time the eponymous blockchain network is done mining 210,000 blocks. The event occurs roughly every four years.
Bitcoin halving has taken place three times so far.
• November 2012: 50 BTC -> 25 BTC
• July 2016: 25 BTC -> 12.5 BTC
• May 2020: 12.5 BTC -> 6.25 BTC
The next Bitcoin halving will occur around 19-24 April 2024 that will reduce the mining reward from 6.25 BTC to 3.125 BTC.
Post the next halving, the king coin’s price would need to rise dramatically for mining to become lucrative for miners. Miners will find it difficult to remain in the game if BTC’s price doesn’t rise in lockstep with the fall in reward.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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