What Investors Need to Know about Bitcoin Halving Events
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What Investors Need to Know about Bitcoin Halving Events
Bitcoin halving is a major blockchain event that occurs every four years. During this period, the number of new bitcoins created is halved. This process is significant as it reduces the rate of inflation and keeps demand high.
This article examines the bitcoin halving process in more detail, including how it affects bitcoin holders, the impact on the price, and the outcome of previous bitcoin halving events.
What Exactly is Bitcoin Halving?
Every 210,000 blocks, the halving procedure takes place. A collection of transactions known as a "block" contains 1 MB of bitcoin. The goal of bitcoin mining is to create a "hash" that secures the bitcoin.
A decentralized network of validators verifies all bitcoin transactions through a process known as mining. As part of the proof-of-work algorithm, a miner receives BTC for being the first to add a collection of transactions to the Bitcoin blockchain.
When the reward for mining bitcoin is halved, it is known as bitcoin halving. In order to combat inflation by maintaining scarcity, the halving policy exists inside the Bitcoin mining algorithm. Therefore, the price will theoretically increase if demand remains the same despite the lower bitcoin supply.
In 2012, the first bitcoin halving took place, causing the price to rise to nearly $650 overnight. After the subsequent price halving in July 2016, it also rose to $20,000 at the end of 2017. But, of course, there were other reasons as well, such as growing public interest in cryptocurrencies and media attention.
What is the Effect of Bitcoin Halving on Investors and Miners?
Since Bitcoin halving is a significant event, it has a major impact on numerous Bitcoin network participants. Below is a brief overview of how investors and miners are affected by the halving:
Investors
Due to the decreased supply and greater demand, the halving usually leads to a bull market. This is excellent news for investors; trading activity on the cryptocurrency's blockchain increases in the run-up to the halving. However, depending on the price-halving conditions, the price increase rate will vary.
Miners
The impact of mining on Bitcoin's ecosystem is complex. On the one hand, the scarcity of a smaller supply of bitcoin will naturally increase demand and prices. However, because there will then be fewer rewards for miners, many individual miners will likely find it difficult to compete with large mining companies and survive in the Bitcoin ecosystem.
The mining capacity for bitcoins is reportedly inversely correlated with the price. As a result, there are fewer miners in a cryptocurrency's ecosystem when its price increases and vice versa. This can increase the likelihood of a 51% attack on the Bitcoin network as miners leave the network, making it less secure.
Price Impact
The argument over whether price halvings influence the price of Bitcoin or whether they are already "priced in" is not yet over.
The rules of supply and demand state that if the supply of Bitcoin decreases, the demand should go up, increasing the price of Bitcoin. The stock-to-flow model determines a ratio between the amount of bitcoin already in circulation and the amount being added, with each halving impacting this ratio. However, there are others who reject this theory entirely.
In the graph below, the vertical blue lines depict three past halving events. It clearly shows how bitcoin's price has increased considerably with each halving.
Source: https://buybitcoinworldwide.com/halving/
We have summarized the information in the table below by breaking down the patterns of Bitcoin halving events into areas such as block number, block rewards, and percentage of Bitcoins mined.
|
Event |
Date |
Block Number |
Block Reward (BTC) |
|
First Bitcoin Halving |
November 28th, 2012 |
210,000 |
25 |
|
Second Bitcoin Halving |
July 9th, 2016 |
420,000 |
12.5 |
|
Third Bitcoin Halving |
May 11th, 2020 |
630,000 |
6.25 |
How do Investors Respond to Bitcoin Halving?
The impact of halving on miners is more or less known, but there is still some uncertainty about the impact of halving on investors. Investors could follow the same strategy many used in 2016 and wait and see. Or they could choose to purchase Bitcoin before the event.
Although many believe that the halving of BTC could cause a short-term price increase, it is difficult to predict. This is because the Bitcoin market is still relatively new and in development.
Overall, investors typically view the event with optimism, and for a good reason—all halving instances in the past have been met by price increases. However, it is important to remember that investors must always do their own due diligence and never invest more than they are comfortable risking.
When is the Next Bitcoin Halving?
At the time of writing, the next anticipated Bitcoin halving date is May 2024. At this time, the bitcoin rewards miners receive for creating a new block will be halved once again.
Bitcoin is a finite resource, even though it appears to be nebulous. There are a total of 21 million Bitcoin in existence.
Where to Buy Bitcoin?
The easiest way to buy bitcoin instantly is through a crypto broker like Binance or eToro. In addition, users can access a wide range of payment options, including credit/debit cards, bank transfers, PayPal, and digital wallets. Users can also deposit with fiat currencies.
Check out the Bankless Times step-by-step guide on how and where to purchase cryptocurrency.
The Bottom Line
The much-hyped "Bitcoin halving" event has been occurring roughly every four years since 2012. Bitcoin halving events are important as they reduce the rate of inflation and keep demand high. In the past, Bitcoin's halving has had a positive outcome for investors. However, for smaller miners, the events have been less positive as it has reduced rewards for validating blocks.
Given that Bitcoin price halvings have historically resulted in major price changes, it is crucial for investors to be aware of upcoming halving events.
FAQs
What is bitcoin halving?
When the reward for mining Bitcoin transactions is cut in half, this is known as a Bitcoin halving event. Even when demand rises, halvings slow down the production of new coins.
How often does BTC halve?
Bitcoin halving occurs approximately every four years.
How long will bitcoin mining last?
According to experts, by 2140, all of the bitcoins will have been mined.
Can I make money from the bitcoin halving?
Yes, it is possible to profit from the halving of bitcoin. You can predict how much bitcoin will cost in the coming weeks and months. However, it is possible to suffer a financial loss also.
When will all 21 million Bitcoins be mined?
All 21 million Bitcoins (BTC) will be mined by 2140.
Sources:
https://decrypt.co/resources/what-is-the-bitcoin-halving
https://www.fool.com/investing/2022/08/25/if-you-invested-100-in-bitcoin-in-2012-heres-how-m/
https://www.businessinsider.com/personal-finance/bitcoin-halving?r=US&IR=T
https://buybitcoinworldwide.com/halving/
https://www.zenledger.io/blog/bitcoin-halving-dates
https://www.gemini.com/cryptopedia/bitcoin-halving-history-crypto-halving-dates-btc-halving
https://www.moonpay.com/blog/what-is-bitcoin-halving#where-to-buy-bitcoin
https://boardroom.tv/bitcoin-halving-definition/
https://www.banklesstimes.com/
https://www.banklesstimes.com/brokers/
https://www.banklesstimes.com/cryptocurrency/buy/
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