Bitcoin is set to undergo its next halving event on April 19, 2024. This will be the fourth halving in Bitcoin’s history and will reduce the Bitcoin mining reward from 6.25 bitcoins per block to 3.125 bitcoins.
Halving events have historically been major inflection points for Bitcoin, so this upcoming event carries significant implications for the cryptocurrency and the overall crypto market.
What is a Bitcoin Halving?
A bitcoin halving refers to a programmed event that occurs roughly every 4 years and leads to the slashing in half of bitcoin’s block reward – the amount of bitcoin rewarded to miners for processing transactions on the network.
When Bitcoin first launched in 2009, miners received 50 bitcoins per block. After the first halving in 2012, the mining reward was reduced to 25 bitcoins. It reduced further to 12.5 bitcoins in 2016 and then to 6.25 bitcoins in 2020.
The next halving will take the block reward down to 3.125 bitcoins per block, indicating that only around 1.8 million bitcoins are left to be mined.
There is a maximum supply cap of 21 million for Bitcoin, so halving events is crucial to the cryptocurrency achieving an eventual fixed supply and acting as a deflationary asset rather than suffering from inflation seen in fiat currencies when central banks print more money.
Halving Dates in Bitcoin’s History
1st Halving – November 28, 2012: Block reward reduced from 50 BTC to 25 BTC
2nd Halving – July 9, 2016: Block reward reduced from 25 BTC to 12.5 BTC
3rd Halving – May 11, 2020: Block reward reduced from 12.5 BTC to 6.25 BTC
4th Halving – April 19, 2024: Block reward to reduce from 6.25 BTC to 3.125 BTC
Why Do Bitcoin Halvings Happen?
Bitcoin halvings are hardcoded into Bitcoin’s protocol to ensure a steady controlled supply of the cryptocurrency is issued. With a capped maximum supply of 21 million and a reduction to the supply issuance rate every 4 years, bitcoin is designed to be a deflationary currency in the long run.
The halving mechanism was set by Satoshi Nakamoto to incentivize more participants to join the network in the early days when mining rewards were higher. The reduction gradually makes mining more difficult over time as bitcoin adoption increases.
In a sense, as Bitcoin’s price and value rise over the long term, mining rewards decrease. This trend will continue until mining rewards stop completely once 21 million bitcoins have been created, projected to be around 2140.
Potential Price Implications
Historically, bitcoin halvings have preceded massive bull runs in bitcoin’s price. The previous two halvings sparked bitcoin’s two largest historical price rallies – the first leading to bitcoin reaching near $20,000 in late 2017 and the second halving helping propel bitcoin over $60,000 just three years later in early 2021.
As bitcoin’s price tends to follow miners’ accumulated revenue from block rewards, each halving event constrains this key revenue stream and usually forces more buyers to compete for the newly scarce supply entering circulation.
With sell pressure diminishing and buy pressure increasing in the backdrop of halvings, major bull runs often occur with bitcoin prices multiplying within 18-24 months after the halvings.
There is potential for history to repeat itself in the next bull run cycle following the 2024 halving. If buying activity rises significantly while mining sell pressure drops due to reduced block rewards, bitcoin could embark on another parabolic price run – likely reaching well over six figures in the coming years.
Some bitcoin pricing models point to prices exceeding $100,000 following the next halving while more optimistic models forecast bitcoin reaching $250,000 to $500,000 by the end of the decade.
Effects on Mining Economics
The upcoming halving will have significant effects on Bitcoin mining economics and the composition of the global mining industry. With block rewards getting cut in half, inefficient miners reliant on outdated hardware will start getting priced out rapidly.
Many will be forced to upgrade to cutting-edge, energy-efficient mining equipment to try to stay profitable. Those unable to adjust will get wiped out.
This pattern of obsolete hardware getting phased out and mining consolidating into bigger professional operations has happened in the aftermath of previous halvings as well.
Mining is set to become even more competitive after the 2024 event with operating at scale more necessary than ever for miners to earn adequate bitcoin revenue.
The reduced block rewards will also constrain selling supply as some large miners may start hoarding more bitcoin on their balance sheet rather than instantly selling at market prices.
With mining revenues reduced across the network, some miners may hold onto more bitcoins in hopes of selling at higher prices later to make up for the shortfall.
This possible change in miner selling behavior could be another tailwind for bitcoin prices as less mined bitcoin gets dumped in the open market post-halving.
Already the 2024 halving has started concentrating hashrate on efficient miners while loss-making miners have gone bankrupt. This restructuring period for mining will likely continue playing out over the next year.
Possible Effects on Altcoin Markets
Past halvings have also affected altcoins either positively or negatively depending on the stage of market cycles.
During bull runs following previous bitcoin halvings, many altcoins also ran up tremendously in what is known as ‘altseason’ – where bitcoin momentum lifts prices across altcoins as well. Several altcoins increased by more than 10-100x within months of previous bitcoin halvings sparking bull runs.
There is potential for a similar altcoin boom through 2025-2026 if Bitcoin embarks on a sustained bull run following its halving in 2024. As bitcoin hits new highs, increased speculative interest tends to spill over into altcoins sending their prices higher as well.
The timing is difficult to predict but the backdrop of bitcoin’s next halving could set the stage for altcoins embarking on their parabolic rallies.
Conclusion
Bitcoin’s upcoming halving in 2024 represents a watershed moment for both the pioneering cryptocurrency and the overall crypto industry. The periodic reduction to Bitcoin’s block reward has tremendous effects on its price, mining landscape, and selling pressure.
Previous halvings sparked bitcoin’s largest historical rallies indicating precedent for significant price appreciation if buying activity overwhelms the newly constrained mining supply.
The 2024 halving will make mining more competitive, consolidate operations towards industrial miners, and likely reduce market sell pressure from miners.
With altcoin markets also following bitcoin’s price trajectory typically, the April 2024 halving event could mark the start of the next major crypto market cycle embarking on a multi-year bull run.
As bitcoin continues on its path as a deflationary store of value, its halving timeline serves to punctuate each milestone towards ultimately maximum scarcity and a potential $250,000+ price point.
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