Bitcoin Halving, Mining Profitability, and Speculation: Understanding their relationships (2024)

FAQs

Will Bitcoin mining be profitable after halving? ›

“Miners need their revenues to be more than their costs, like any business,” Malekan says. “What is likely to happen after the halving is that some miners will no longer be profitable, and they will stop mining.”

Currently, Bitcoin is exhibiting a pre-halving retracement characterized by bearish signals and lateral market movements. A technical analysis of the weekly time frame reveals the formation of a Cup and Handle pattern in Bitcoin's price chart. Traditionally, this pattern can proceed further downward movements.

After the 2012, 2016 and 2020 halvings, the bitcoin price ran up about 93x, 30x and 8x, respectively, from its halving day price to its cycle top. The event is a big test for mining companies, however.

While Bitcoin halving is generally viewed as a positive event, there are inherent risks, particularly in the short term. The anticipation leading up to the halving can create speculative market behavior, potentially resulting in increased volatility.

In a research note from Needham on Apr. 16, analysts said they expect the halving to only have a modest impact to miners' estimated EBITDA margins, despite the 50% reduction in revenue, since the price of bitcoin has been trading in the range of $60,000 to $70,000.

The immediate impact of the halving is felt primarily by bitcoin miners, who see their block rewards cut in half, affecting their profitability and potentially leading to changes in the cryptocurrency mining industry.

These peaks are often reached within a year after a halving, riding the wave of reduced supply and heightened demand, before the natural market correction takes hold due to profit-taking and the cyclical nature of investor sentiment.

The past three halvings – in 2020, 2016 and 2012 – have resulted in an average price increase of 16% over the 60 days that followed, according to data from the asset research firm 10x Research. The 2016 halving resulted in a decrease of 6% over the following 60 days, although it then rallied strongly throughout 2017.

The Bitcoin algorithm dictates halving happens based on the creation of a certain number of blocks, with that landmark having just been reached on 19 April 2024. Given that halving dates are based on current transaction rates, halving dates can only be predicted with uncertainty.

The next halving is set to take place in 2028 and the reward will be reduced to 1.5625 from 3.125 for a miner that successfully processes a block of transaction data. The average time to finish a block is around 10 minutes.

Will the halving increase price? ›

Historically, the halving has driven a significant price increase, but this time around, Bitcoin is already not far from record levels. "It's difficult to say whether this could limit how high the price could rise, but we could well be in store for some price volatility.

Stay Informed: Keep up with the latest market trends and news. The crypto landscape can change rapidly, and staying informed will help you make educated decisions. Assess Your Investment Strategy: Consider how the halving may impact your long-term investment strategy.

A halving, which occurs about every four years, was designed by bitcoin's creator, Satoshi Nakamoto, to effectively reduce by half the reward that miners of the digital token receive.

When its supply is reduced through halving, and if the demand stays constant or increases, we often see a ripple effect on the prices of other cryptocurrencies.

There will be more halvings in the future. Expect to be reading about this event again in early 2028. At that point, the reward will halve again to 1.5625 BTC per block. This will keep going on until around the year 2140 when mathematicians predict the last Bitcoin will be mined.

As each halving event reduces the block reward by half, the supply of new bitcoins entering circulation will continue to decrease over time. This built-in scarcity mechanism is designed to make Bitcoin increasingly scarce, which, in theory, should lead to higher prices as demand grows while supply diminishes.

Typically, Bitcoin prices continue to surge for a good few months following a halving month, rising, on average, for seven months.

More than half of the experts Finder surveyed expected the price to increase after a so-called "BTC halving event" in April 2024. A halving event refers to a period every few years when the reward for mining Bitcoin transactions is cut in half.