The how, where, and what of Bitcoin's upcoming 2024 halving event
How this pivotal moment could influence crypto market trends and inform investment decisions.
7 min read
The market for crypto assets and the purchase of crypto assets constitute a high risk. Crypto assets are subject to high fluctuations in value, and there is no real underlying asset. Declines in value or a rapid, complete loss of the money spent are possible at any time. Past performance is not a reliable indicator of future performance. The values depicted above are fictional and for illustrative purposes only. The statements and illustrations do not constitute investment advice.Crypto enthusiasts mark your calendars: it's widely believed that in April 2024, the total number of Bitcoins available for mining will be halved. This event, affectionately known as “The Halvening,” takes place roughly every four years and could impact the entire crypto market and the future of Bitcoin as we know it. In many ways, Bitcoin halving affects everyone in the Bitcoin ecosystem and beyond. For miners, it's like the gold in the mine gets 50% harder to dig up. For investors and traders, it's a moment wrapped in speculation, and for the market, it's a time of uncertainty, a moment that could sway the value of Bitcoin in either direction and send ripples across the entire crypto market.
Bitcoin halving: the what
But, let's take a step back. To understand what Bitcoin halving is, we first need to delve into the topic of Bitcoin mining. Bitcoin mining is how new Bitcoins are made available on the crypto market. Think of it like a giant, competitive puzzle-solving contest. Miners from all over the world use powerful computers to solve a series of complex mathematical puzzles. The first one to solve a puzzle gets to add a "block" of transactions to the blockchain, which is a public ledger of all Bitcoin transactions. As a reward for their hard work, miners receive newly minted Bitcoins. This process introduces new Bitcoins into circulation and secures and verifies transactions.Now, here's where it gets interesting. Every four years, Bitcoin's total available rewards for new blocks are halved. As a result making Bitcoins harder to come by. There have been three "halvings" since Bitcoin’s inception:
In 2012, the first halving cut the supply from 50 to 25 bitcoins per block mined.
In 2016, reserves were reduced further to 12.5 bitcoins.
In 2020, they were cut to 6.25 bitcoins per block.
With the clock ticking towards the next halving in April 2024, we're on the cusp of seeing the reward drop to 3.125 bitcoins per block. It's a big deal because, with over 19 million Bitcoins already mined, we're getting closer to the 21 million cap imposed by Satoshi Nakamoto, Bitcoin's mysterious creator.
The why behind 'The Halvening'
So, why is Bitcoin halving? Satoshi Nakamoto, the creator of Bitcoin, left us guessing, but it's widely speculated that this was all part of the plan to make Bitcoin more valuable over time. Early on, generous rewards encouraged people to mine and secure the network. As the network grew, the value of each bitcoin was expected to rise, offsetting the reduced block reward.Another angle suggests that halving introduces a deflationary feature into Bitcoin's economy, preventing the devaluation seen in fiat currencies due to excessive printing. This fixed supply and predictable issuance rate is Bitcoin's hedge against inflation. However, this model isn't without its critics. Some argue that the promise of increasing value encourages hoarding, leading to volatility and boom-bust cycles as people cash in their digital gold during peaks.
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How have previous halvings impacted Bitcoin's value?
On May 11, 2020, the reward for mining a block dropped from 12.5 and 6.26 Bitcoins. It was an event that didn't just tighten the supply of new bitcoins entering the market but also set the stage for a dramatic shift in Bitcoin's value.Exactly a month before the halving, Bitcoin was trading at $6,886 a coin. As the halving approached, the price surged to $,8787 by the day of the halving. But that was just the beginning. Over the next 18 months, despite the ups and downs that are all too familiar in the crypto world, Bitcoin's value reached a high of $68,991 in November 2021, marking a significant milestone in Bitcoin's journey.This cycle somewhat echoed the aftermath of the 2012 and 2016 halvings, where Bitcoin’s value increased in the year following each halving. However, after an initial surge, the halvings were followed by a notable drop in value as the market adjusted. Yet, the price always stabilized much higher than before the halving.But, full disclaimer: Predicting the future based on historical trends is a very risky territory. While the previous Bitcoin halvings have resulted in what appears to be similar cycles, it’s by no means a guaranteed pattern. JP Morgan, for example, predicts that the value of Bitcoin will fall by 20%, to around $42,000 after the halving event. Likewise, Nicholas Sciberras from Collective Shift, states that with the White House proposing a tax of up to 30% on Bitcoin miners in North America, the value of Bitcoin could be negatively impacted.
Where could Bitcoin's value possibly go next?
Bloomberg Intelligence and Matrixport analyses are predicting that the upcoming halving could propel Bitcoin's value by at least 81%. With Bitcoin reaching new all-time highs in 2024, some believe this is a good indicator that the 2024 halving will propel Bitcoin’s value well into the next year.However, not everyone believes the hype. Michael Zhao, research analyst for Greyscal, highlights that external factors also contribute significantly to Bitcoin’s value and these factors are difficult to predict. For instance, significant financial events such as the 2012 European debt crisis, the explosion of initial coin offerings in 2016, and the economic stimulus measures introduced during the Covid-19 pandemic in 2020, all paralleled notable increases in Bitcoin's value. Whereas other experts such as John Hawkins, senior lecturer at the University of Canberra, even refer to Bitcoin as nothing but a speculative bubble.Whether optimistic or skeptical, it's important to remember that cryptocurrency is a highly volatile asset class. While the thrill of chasing its impressive highs has led some investors to great wealth, it's also led many to financial misfortune.
Adopting a sensible approach
We'd like to stress that this article shouldn't be taken as investment advice, but rather as context to help you make the most out of the upcoming Bitcoin halving. When taking the plunge into cryptocurrency it's important to tread with caution. Cryptocurrency investments are subject to dramatic fluctuations that can be influenced by various factors, from global economic shifts to regulatory changes. As a result, before investing, it’s essential to conduct some thorough research and understand the risks involved. Cryptocurrencies are just one of many investment avenues; there are various traditional and alternative investments that might align with your financial goals and risk tolerance. Take the time to educate yourself on these options, seeking out reputable sources and possibly consulting with a financial advisor.Most importantly, invest only what you can afford to lose. The high volatility of cryptocurrencies means that while there's potential for significant returns, the risk of loss is equally significant. Your investment strategy should reflect your financial stability and willingness to accept the possibility of losing your investment.
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