Before Bitcoin was launched in 2009, Satoshi Nakamoto designed the cryptocurrency to have a maximum supply of 21 million coins. As part of the greater plan, the number of new Bitcoin that enter circulation decreases at regular intervals, thus maintaining the total supply. These intervals are known as halvings, and affect everything from market value to investing strategies to potential profitability. Let's get into it.
What is the Bitcoin halving?
Roughly every 4 years, or every 210,000 blocks that are mined, the network undergoes a halving where the block reward for miners is reduced by 50%. This reward is earned by verifying transactions and adding a new block to the blockchain.
The halvings process decreases the rate at which new Bitcoins enter circulation, gradually depleting the remaining supply until the final satoshi is mined, expected to be around 2140. After that, miners will solely rely on transaction fees as an incentive to validate blocks.
The most recent Bitcoin network halving took place in April 2024, when the mining reward was reduced from 6.25 BTC to 3.125 BTC.
Why does the halving occur?
The Bitcoin halving is pre-programmed into Bitcoin's core code and is not something that can be changed - it's set in stone. Designed to control and slow down the release of new Bitcoins over time results in fewer and fewer Bitcoin being minted after each halving event.
This limited supply is a key part of what gives the digital currency its deflationary nature and potential for increasing value. As the supply is capped at 21 million, the dwindling new supply hitting the market reinforces Bitcoin's artificial scarcity.
Previous Bitcoin halvings
Below we look at previous halvings and how these affected the price of Bitcoin. Historically, 12 - 18 months after halvings, Bitcoin has reached a record high. While this is not the rule of thumb, it has certainly been witnessed.
2009 - Bitcoin launches
Date: 3 January 2009
Block reward: 50 BTC
2012 - Bitcoin’s first halving
Date: 28 November 2012
Block: 210,000
Block reward: 25 BTC
Price before halving (November 2012): Around $12
Next all-time high after halving: $1,156 (November 2013)
2016 - Bitcoin’s second halving
Date: 9 July 2016
Block: 420,000
Block reward: 12.5 BTC
Price before halving (July 2016): Around $650
Next all-time high after halving: $19,891 (December 2017)
2020 - Bitcoin’s third halving
Date: 11 May 2020
Block: 630,000
Block reward: 6.25 BTC
Price before halving (May 2020): Around $8,800
Next all-time high after halving: $69,000 (November 2021)
2024 - Bitcoin’s fourth halving
Date: 19 April 2024
Block: 840,000
Block reward: 3.125 BTC
Price before halving (April 2024): Around $65,000
At the time of writing, next all-time high after halving: $99,655.50 (November 2024)
Taking a look at the future dates, the next halving is expected to take place in 2028, when the block reward will be reduced to 1.5625 BTC. Thereafter, in 2032 and 2036. This will continue until all Bitcoins have been mined, which is expected to be in 2140.
Potential impacts of the recent halving
The next Bitcoin halving event is expected to have several potential impacts on the cryptocurrency. First and foremost, it will reduce the supply of new Bitcoins entering circulation by 50%, substantially decreasing its inflation rate. This scheduled supply rate reduction enhances Bitcoin's hardcoded scarcity which could lead to increased demand if investors view reduced supply as more desirable. Higher demand coupled with tightened supply could potentially drive up Bitcoin's price.
However, the halving will also cut block rewards for miners by 50%, which could force some smaller mining operations to shut down if their expenses outweigh newly reduced revenues. This may result in mining becoming less decentralised as larger entities with greater economies of scale are able to continue operating profitably. This could lead to further consolidation of the mining hashrate among a smaller number of big players.
Regardless of price movement, the most recent halving holds significance for Bitcoin's disinflationary issuance schedule, which will continue until the final Bitcoin is mined around 2140. This systematically shrinking supply reinforces Bitcoin's key value proposition as a deflationary asset, with absolute scarcity built into its design. Understanding this info highlights why some investors see Bitcoin's scarcity as a central role in its potential long-term value.
How will the rest of the crypto market be impacted?
We can confirm that Bitcoin's halving creates a ripple effect across the entire cryptocurrency market. While it directly impacts Bitcoin, it can also cause broader market shifts affecting many altcoins as investors start adjusting their portfolios during this time, which can lead to increased volatility and capital moving between digital assets.
Established cryptocurrencies like Ethereum often respond to Bitcoin's market changes, though their reactions aren’t always predictable. Smaller, less-known coins may face even greater uncertainty. Because crypto markets are so interconnected, even indirect effects from the halving can create big waves, making it a key event that influences the entire ecosystem.
Should I invest during a Bitcoin halving?
Sure, navigating Bitcoin halving speculation can feel like walking through a maze. Investors often debate the best timing - before, during, or after the event - but there's really no universal playbook.
The cryptocurrency market moves in mysterious ways, influenced by countless global factors, and past halvings have shown dramatically different market behaviors, making predictions challenging. While some see these events as potential opportunities, others view them with caution.
The key is understanding that no single strategy guarantees success. Individual research, a clear view of personal risk tolerance, and a broad understanding of market dynamics are essential for anyone considering involvement in this volatile landscape.
The bottom line
The Bitcoin halving is a highly significant event worth learning about as it enforces the cryptocurrency's hardcoded disinflationary monetary policy. While past halvings have led to powerful bull markets and substantial price appreciation, as illustrated above, it's important to understand that future price movements remain unpredictable and cannot be relied on.
Bitcoin's value is influenced by a complex array of factors beyond just supply dynamics, including adoption rates, regulatory developments, and overall market sentiment. Though artificially constrained supply can increase scarcity, demand is ultimately the driving force behind long-term valuations.
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