BitDelta
5min read
Jan 10, 2024
Bitcoin (BTC) has become so popular, attracting both institutions and individuals seeking to capitalise on its volatility to generate profits. The bitcoin halving event, which occurs once every four years, is one significant factor that makes BTC extra unique and attractive to investors.
Historically, Bitcoin halving has always had a positive influence on the crypto market, with past halvings leading to a rise in Bitcoin’s price and market capitalisation. Would this always be the case in the future? The answer is still unknown.
But what exactly is bitcoin halving and why is it important to crypto investors? We answer all your questions in this article.
Bitcoin halving is a noteworthy event that happens in the Bitcoin network every four years. The process has been incorporated into the Bitcoin protocol since its creation to control its inflation rate.
This predetermined event strives to keep the quantity of BTC in circulation under control and helps reduce the rate at which a new Bitcoin is created. In other words, bitcoin halving ensures that BTC is neither oversupplied nor supplied too quickly.
Unlike fiat currencies (which have unlimited supplies), the total supply of Bitcoin is capped at 21 million. That is, only 21 million BTC tokens will exist.
More specifically, it is a method of lowering the incentive paid to bitcoin miners for validating transactions on the network and adding new blocks to the Bitcoin blockchain.
A block refers to a collection of verified and validated transactions that are added to the blockchain.
The first bitcoin halving happened in November 2012 after 210,000 blocks were created. This resulted in a decrease of the reward given to miners per block created to 25 BTC. Notably, at the start of the Bitcoin network, miners' reward per block was capped at 50 BTC.
In July 2016, the second halving event occurred after 420,000 blocks were added to the Bitcoin network. Again, the reward accrued by a miner for validating one block on the Bitcoin network was slashed by half – miners’ reward was reduced from 25 BTC to 12.5 BTC.
The most recent and third bitcoin halving event occurred in May 2020 after the creation of 630,000 blocks on the largest crypto network.
As a result, the reward for validating transactions and adding new blocks to the Bitcoin network was reduced to 6.25 BTC from 12.5 BTC.
From the foregoing, the next bitcoin halving aka the fourth bitcoin halving is expected when 840,000 blocks must have been contributed to the Bitcoin network. This block height would be reached around April 2024, leading to a reduction of reward per block mined to 3.125 BTC.
The halving of Bitcoin is usually followed by a lot of volatility for the cryptocurrency. The halving cycle reduces the amount of available Bitcoin, increasing the value of Bitcoin tokens yet to be mined. These changes present an opportunity for investors to make profits.
1. The first halving occurred on November 28, 2012, when the price of BTC was at $12.
One year later, Bitcoin had soared to over $1,000.
2. The second halving took place on July 9, 2016, and Bitcoin’s price plunged to $670 at the moment but rose to $2.550 by July 2017. Subsequently, Bitcoin hit an all-time high of almost $19,700 in December 2017.
Notably, the price of BTC was at $8,787 at the time of the third halving event in May 2020.
However, the asset’s value skyrocketed massively in the months that followed.
The halving event plays a critical role in making bitcoin a deflationary asset.
The inflation rate of the largest crypto by market capitalisation reduces after every halving event.
But after the first bitcoin halving in 2012, it reduced to 12%. It further declined and stayed between 4-5% in 2016 after the second halving event.
In addition, a considerable association exists between Bitcoin mining difficulty and Bitcoin halving.
The complexity of the mathematical problems that miners must solve to validate and add transactions to the largest crypto network is known as Bitcoin mining difficulty. It helps to maintain the pace at which a new BTC is mined or brought into circulation.
After every 210,000 blocks created on the Bitcoin network, the payout for miners is slashed in half.
Regardless of the decrease in block rewards, miners are always encouraged to validate transactions and add them to the blockchain, because Bitcoin halving often results in an increased asset value.
However, it is important to note that previous effects are not indicative of future outcomes, and Bitcoin investing should always be approached with care.
Data indicates that we are about 96% through the journey to the next halving event, with under two months remaining until the reward for mining a block is reduced from 6.25 bitcoins to 3.125 bitcoins.
Although it is still premature to identify the precise date, the next Bitcoin halving is expected to take place in April 2024.
It is difficult to predict the exact date, as it depends on the block heights.
Since halving happens every 210,000 blocks, the next BTC halving is expected to occur in April 2024 when the block height reaches 840,000.
While the exact timing of the event is not fully confirmed, it is expected to happen sometime around April 19 and 24.
Bitcoin halving is a method of lowering the incentive paid to miners to half for validating transactions on the Bitcoin network and adding new blocks to the Bitcoin blockchain.
Bitcoin halving strives the quantity of BTC in circulation under control and helps to reduce the rate at which a new token is created.
In other words, bitcoin halving ensures that BTC is neither oversupplied nor supplied too quickly.
Bitcoin halving occurs on the Bitcoin network every four years.
So far, it has taken place four times.
Date | Result |
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 | Reward reduced from 6.25 BTC/block to 3.125 BTC/block |
Bitcoin halving is usually followed by a lot of volatility for cryptocurrency market. Let's look at the price movements around the dates of previous halving events.
a. BTC flew from $12 to $1K within a year of the first halving.
b. Though BTC plunged to $670 immediately following the second halving (July 2016), it rose to $2.550 by July 2017. Subsequently, BTC hit an ATH of almost $19,700 in December 2017.
c. BTC stood at around $8,700 around the third halving (May 2020) and soared more than 3x to $28,800 by the end of 2020.
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.