What Is Bitcoin Halving and How Does It Affect Bitcoin Price?
What is Bitcoin halving and how does it affect the current price of Bitcoin? If you’re new to Bitcoin mining or aren’t familiar with the processes that go into maintaining this cryptocurrency, this whole concept may be new to you. You may also wonder why and when Bitcoin halving occurs, and what impact the latest halving on May 11th will have on your mining assets.
We’ll give you the answers you need to these questions and more regarding this specific (and popular) cryptocurrency.
What Is Bitcoin Halving?
Bitcoin halving describes the process in which the currently available supply of Bitcoin (Bitcoin’s block subsidy) is cut in half. This means that Bitcoin halving reduces the miner’s block reward by exactly 50% for each black, moving forward. So, for every 210,000 algorithmic codes unlocked and recovered by Bitcoin miners, the reward for mining will be reduced by half its pre-halving value. In lay terms, the supply is lowered. This process also reduces Bitcoin’s inflation rate by 50%.
When Does Bitcoin Halving Occur?
Halving is scheduled to occur after every 210,000 blocks until the supply of block rewards eventually reaches zero. (Since this process takes place about every four years, this zeroing is expected to take place in the year 2140.)
Halving is a standard operational protocol that’s been integrated into the cryptocurrency’s code since its creation in 2009. Prior to this month's halving, the first took place in November 2012 and the second in July 2016. The fourth halving is expected to occur in May 2024.
Why Is Halving Necessary for Bitcoin?
There are many complex reasons as to why Bitcoin halving is a necessary process for this cryptocurrency. Below are five major reasons as to why halving is an important part of Bitcoin’s maintenance cycle:
Maintain Bitcoin’s finite supply: There is a set number of Bitcoins available for mining--exactly 21 million Bitcoins will ever exist. This limit makes Bitcoin a deflationary asset, meaning that its value should increase into the future as the overall supply continues to dwindle down. With 18.5 million Bitcoins already mined from its 21 million supply, halving protects the cryptocurrency from being entirely mined before it is meant to be.
Scarcity maintains high demand: Bitcoin halving reduces the rate at which mined Bitcoins are available. Since Bitcoin operates on a deflationary value model, the scarcity of Bitcoin’s supply should increase its demand, pushing prices for the cryptocurrency higher. Routinely halving its already finite supply further promotes the supply-demand chain that keeps Bitcoin so valuable.
Stabilizing Bitcoin: Unlike standard currencies, a cryptocurrency like Bitcoin does not have a centralized bank that regulates its supply. Without halving, many crypto experts believe that Bitcoin could become too volatile of a currency. For this reason, the halving process is appreciated by many miners because it makes Bitcoin a safer alternative to less stable cryptocurrencies that are more vulnerable to devaluation from sudden market changes.
Immediate incentives for miners: Theoretically, halving results in the reduction of Bitcoin’s availability, meaning that miners have less to sell to buyers. Since halving is a process by which Bitcoin’s finite supply is reduced, this higher demand encourages miners to keep the blockchain network running by making more Bitcoin available.
Future rewards: The eventual zeroing of Bitcoin’s supply will reward miners with transaction processing fees that network users will pay to them. Bitcoin’s standardized halving schedule has historically had positive impacts on its dollar value, so the decrease in mining rewards has not negatively impacted miners’ incentives to continue the blockchain. Rather, the promise of monetary rewards post-zeroing encourages miners to move towards that future gain.
How Does Halving Affect Bitcoin Price?
Previous Impacts of Bitcoin Halving
Despite speculation about potential negative impacts of this most recent halving event, the two previous halvings had an overall positive impact on Bitcoin price. In fact, both events resulted in immediate positive surges in dollar value: November 2012’s halving raised its value from $11 to $1,150, an over 10,000 percent increase in its dollar value post-halving. July 2016’s halving led to a smaller but significant surge in Bitcoin’s dollar value, raising it from $650 to $20,000, an almost 3,000 percent increase.
Though both of these surges were followed by significant price drops, both drops still resulted in a higher dollar value than had been seen pre-halving.
Latest Halving’s Impact on Bitcoin Price
Since the latest halving on May 11th, the Bitcoin block reward was lowered from 12.5 BTC to 6.25 BTC. Unlike its previous occurrences, this latest halving seems to have had little to no impact on the cryptocurrency’s price so far, with few other impacts expected to occur. Right before May 11th’s halving, Bitcoin was trading at around $8,500. In the days following the halving, this price has fluctuated between $9,500 and $9,800.
However, the more-or-less mild results of this most recent halving event don’t indicate a decrease in the demand or viability of Bitcoin as a cryptocurrency—these results have instead lowered market expectations of Bitcoin’s future volatility, a metric which has previously used against Bitcoin and other decentralized electronic currencies. Others speculate that as more institutional money enters the Bitcoin space, the changes in price due to halvings are “built in” the price at the time of the halving. In other words, speculators may take advantage of the halving by obtaining a long position months, or even years, before a halving event.
What Do the Results of May 11th’s Halving Mean for Bitcoin Miners?
This most recent halving event had a relatively small impact on the overall dollar value of Bitcoin, causing some concerns about what incentives miners still have to continue blocking when the dollar value of Bitcoin isn’t high enough to justify the effort. However, the cryptocurrency has another in-code process to protect itself against unwanted value changes: in the event of little-to-no raise in Bitcoin’s dollar value post-halving, the difficulty of receiving mining rewards is reduced. This maintains the currency’s rewards system by lowering the difficulty of processing a transaction, leading to a general increase in successful mining.
Understanding Bitcoin and Other Cryptocurrencies Through Pelicoin
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