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Published on: Mar 6, 2024
#Crypto 360
#Financial Markets
Bitcoin halving is an event that occurs on the Bitcoin blockchain every time 210,000 new blocks are added. How will the next Bitcoin halving impact BTC's immediate and long-term price movement?
➔ Bitcoin halving is the process of cutting the Bitcoin mining reward in half so that Bitcoin inflation can be handled.
➔ The next Bitcoin halving is expected to occur sometime in April 2024.
➔ Regarding the next halving’s impact on Bitcoin’s price movement, there are rather extreme opinions.
Bitcoin’s extraordinary run that began in mid-October last year has finally achieved a target once considered nearly impossible. BTC/USD briefly rose above $69K on 5 March, surpassing its previous all-time high (ATH) of $68,789.63 that it hit in November 2021.
The year 2024 has been nothing short of a blessing for the crypto community since the U.S. Securities and Exchange Commission (SEC) granted approval to more than ten spot Bitcoin exchange-traded funds (ETFs) in early January. Bitcoin has surged nearly 50% since the beginning of the year as the bull market, riding on the excitement around ETFs, continued to fuel the rally.
In fact, the crypto market is witnessing an uptick since October last year. There is another upcoming event that is expected to further fuel Bitcoin’s price rally. Yes, we are talking about the next Bitcoin halving that is expected to occur sometime in April 2024.
Bitcoin halving is a method of disincentivising the rewards paid to miners for validating transactions and adding blocks on the Bitcoin blockchain. With the next Bitcoin halving expected the next month, most experts believe that the event will lead to Bitcoin reaching unsurpassable heights. However, there are some who are not so optimistic and remain quite apprehensive of any such overenthusiastic prediction.
Image: BTC/USD price chart movement, by BitDelta
We know that like everyone, even you might be losing sleep over the potential impact of Bitcoin halving over the king coin’s price over the next few months. The excitement, confusion and worry are indeed understandable. In this article, we will address all your questions about Bitcoin halving, its importance, and its impact on the BTC’s further price movement.
Bitcoin halving is an event that occurs on the Bitcoin blockchain network every time 210,000 new blocks are created. Each halving reduces the payout for miners in half. Regardless of the drop in block rewards, miners are always encouraged to validate transactions and add blocks to the blockchain because halving often results in an increased asset value.
Recommended Read: Bitcoin Halving Explained
To understand the concept in detail, it is important to quickly understand how a blockchain network works. To put it simply, a blockchain is a chain of blocks. A block is like a sack containing a certain number of cookies. When a new block is added to the side of the previous block, they are unalterable and set in ‘digital stone–creating a blockchain.
On a Bitcoin blockchain, a block contains a series of verified and validated transactions. Unlike a fiat currency (which has an unlimited supply), the total supply of Bitcoin is capped at 21 million. It means that only 21 million BTC tokens will ever be in existence.
Bitcoin halving is intended to keep the circulating quantity of BTC under control. It helps to reduce the rate at which a new Bitcoin is created. In other words, halving ensures that BTC is neither oversupplied nor undersupplied. Occurring nearly every four years, the process has been incorporated into the protocol since its creation to control Bitcoin’s inflation rate.
Though previous events are not indicative of future outcomes, it is always a good idea to study the impact of previous halving events on Bitcoin’s price.
➔ The first Bitcoin halving occurred on 28th November 2012 when the price of BTC was at $12. Its value rose to over $1,000 within a year. It reduced the mining reward from 50 BTC to 25 BTC.
➔ The second halving took place on 9th July 2016, with BTC’s price plunging to $670 immediately thereafter. However, it rose to $2.550 by July 2017. In December 2017, it hit its highest price till date, approximately $19.7k. It reduced the mining reward from 25 BTC to 12.5 BTC.
➔ The third halving took place on 11th May 2020 when the price of BTC was around $8,750. The price rose more than 3x to $28.8k by the end of 2020. It further surged to more than $67k in early November 2021. It reduced the mining reward from 12.5 BTC to 6.25 BTC.
➔ The fourth halving will take place around 19th-24th April 2024 when 840,000 blocks would be added to the Bitcoin blockchain. It will reduce the mining reward from 6.25 BTC to 3.125 BTC.
The next Bitcoin halving is expected to take place sometime in April 2024. The event will have significant repercussions for the mining community. In simple words, Bitcoin mining is the process of solving a computational problem that validates transactions and registers them into the ledger also known as the blockchain.
About every 10 minutes, enough Bitcoin transaction records are gathered to create a new block on the chain. Miners validate and add new blocks to the blockchain, and those who successfully add a new block get a mining reward.
Image: How Bitcoin mining works
Since Bitcoin runs on a proof of work (PoW) consensus mechanism, it is an energy-intensive process. Miners use high-tech rigs such as application-specific integrated circuits (ASICs), graphics processing units (GPUs), central processing units (CPUs), etc. for Bitcoin mining. A robust network infrastructure, in tandem with a massive energy capacity, is also required to run the mining rigs.
Read Also: Explaining Proof of Stake (PoS)
It is obvious that it requires a huge investment to run these Bitcoin mining operations. As mining rewards go down post the Bitcoin halving, the king coin’s price needs to rise dramatically for mining to become profitable for miners. If Bitcoin’s price doesn’t rise in lockstep with the decline in mining rewards, the mining community will find it difficult to continue the operations.
In such a scenario, there is a huge change that miners will quit the ecosystem and the Bitcoin network may encounter a brief bottleneck as miners move to more profitable networks. But that is unlikely to happen given the expectation that the king coin will recover even if it falters for a few weeks post the next halving.
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 mining firms such as Marathon Digital Holdings, Cleanspark, Riot Blockchain, Core Scientific, Bit Digital, and Hut 8 Mining are among the most profitable tech ventures today.
Bitcoin is already trading at more than $62K amid the bull run, thanks to the introduction of spot Bitcoin ETFs in the US market. It has just hit above the $69K-price mark. What will be the impact of the next Bitcoin halving on the king coin’s immediate and long-term price movement?
There are two extreme opinions on the matter. How bullish the crypto community is on Bitcoin can be gauged by the fact that a prominent analyst predicted it to hit a new ATH of $88K. Bitwise Senior Crypto Research Analyst Ryan Rasmussen, in an interview with Yahoo Finance, said:
“We think that will at least see a 10% to 15% bump over the last all-time high in 2024. That would take us to the mid 80k range. So, I think our target was 88,000 by the end of 2024.”
On the other hand, JPMorgan’s analysists are not so positive about the next halving’s impact on BTC’s price movement. As per a recent Fortune report, the analysts noted that the event will negatively impact miners' profitability and lead to a higher bitcoin production cost. Post the halving, BTC’s price could plummet to as low as $42k.
There is a possibility of a 20% decline in the Bitcoin network's hashrate after the halving, primarily due to less efficient rigs exiting mining operations due to reduced profitability.
“This $42,000 estimate is also the level we envisage bitcoin prices drifting towards once bitcoin-halving-induced euphoria subsides after April,” the analysts wrote.
So, how should the trading community manoeuvre amid these circumstances?
So far, every Bitcoin halving has led to a price uptick for the king coin—if not immediately, then at least over the next few months after the event. However, previous price upticks are no guarantee for any future price trends. If you are a trader who is thinking of buying Bitcoin before the halving, you aren’t in the minority.
In fact, a lot of trading are considering the possibility as it can indeed be a profitable venture given the fact that BTC’s price is expected to rise after the event. However, please note that crypto—Bitcoin, in particular—is a volatile asset, and you should assess your risk capacity before trading Bitcoin.
We recommend that BitDelta users should keep a close look at Bitcoin’s price as we approach the halving the next month. To keep yourself abreast of the latest trends in Bitcoin’s price movement, keep yourself tuned in to the BitDelta Blog.
Bitcoin halving is the process of cutting the Bitcoin mining reward in half. This mechanism is vital in handling Bitcoin inflation since it slows down the rate at which new tokens are introduced to the market.
This mechanism is vital in handling Bitcoin inflation since it slows down the rate at which new tokens are introduced to the market.
Bitcoin halving is a crucial phenomenon in the Bitcoin ecosystem that controls inflation and token supply at periodic intervals.
Bitcoin halving happens once in four years. So far, it has happened four times:
• November 2012: Reward reduced from 50 BTC/block to 25 BTC/block.
• July 2016: Reward reduced from 25 BTC/block to 12.5 BTC/block.
• May 2020: Reward reduced from 12.5 BTC/block to 6.25 BTC/block.
• April 2024: The latest halving cut the reward from 6.25 BTC to 3.125 BTC.
Bitcoin's next halving will take place in April 2024.
Historically, Bitcoin's halving has impacted BTC’s price movement.
• In November 2012, BTC increased from $12 to about $1,000.
• In July 2016, BTC increased from $670 to about $7,000.
• In May 2020, BTC increased from $8,700 to about $28,800.
• In April 2024, with Bitcoin trading at $65k, the market is expected to respond.
Therefore, the following months will be critical in establishing the future direction of the premier cryptocurrency.
Experts are rather divided when it comes to predicting Bitcoin’s price post the halving. While some experts believe BTC’s price could rise as high as $88K, others think it will fall to as low as $42K.
As mining rewards go down post the Bitcoin halving, the king coin’s price needs to rise dramatically for mining to become profitable for the miners. Otherwise, mining will become more competitive.
Yes, Bitcoin transaction fees are expected to go up after halving as has happened previously.
Buying Bitcoin before the halving can be a profitable venture as its price is expected to rise after the event. However, keep in mind that crypto is an extremely volatile asset and you should assess your risk capacity before trading Bitcoin.
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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