As bitcoin's price reaches new heights, attention is turning to its upcoming "halving" and whether it is playing a role in its ascent.
Depending on where you sit, the halving is a vital event that will burnish bitcoin's value as an increasingly scarce commodity, or nothing more than a technical change talked up by speculators to inflate its price.
But what exactly is it, and does it really matter?
Crypto Tracker
WHAT IS IT?
The halving is a change in bitcoin's underlying blockchain technology, designed to reduce the rate at which new bitcoins are created.
Bitcoin was designed from its inception by its pseudonymous creator Satoshi Nakamoto to have a capped supply of 21 million tokens.
Nakamoto wrote the halving into bitcoin's code and it works by reducing the rate at which new bitcoin are released into circulation.
So far, about 19 million tokens have been released.
HOW DOES IT HAPPEN?
Blockchain technology involves creating records of information - called 'blocks' - which are added to the chain in a process called 'mining'.
Miners use computing power to solve complex mathematical puzzles to build the blockchain and earn rewards in the form of new bitcoin.
At the halving, the amount of bitcoin available as rewards for miners is cut in half. This makes mining less profitable and slows the production of new bitcoins. (For a visual explanation of how blockchain works, click here.)
WHEN WILL IT HAPPEN?
There is no set date, but it is expected to take place in late April.
The blockchain is designed so that a halving occurs every time 210,000 blocks are added to the chain. This means it happens roughly every four years.
WHAT'S IT GOT TO DO WITH BITCOIN'S PRICE?
Some bitcoin enthusiasts say that bitcoin's scarcity gives it value.
The lower the supply of a commodity, then all other things being equal the price should rise when people try and buy more.
So reducing supply of bitcoin should lift the price, some analysts and traders say. Others dispute the logic, noting that any impact would have already been factored in to the current price.
The supply of bitcoin to the market is also largely down to crypto miners but the sector is opaque, with data on inventories and supplies scarce.
If miners sell their reserves, that could put downward pressure on prices.
Knowing what is behind a crypto rally is hard, not least as there is far less transparency about who is buying and why relative to other markets.
The most common reason given for this year's surge is the U.S. Securities and Exchange Commission's January approval of bitcoin ETFs, as well as expectations that central banks will cut interest rates.
But in the speculative world of crypto trading, explanations given by analysts for changes in bitcoin's price can snowball into market narratives that can become self-fulfilling.
WHAT ABOUT PREVIOUS HALVINGS?
There's no evidence to suggest that previous halvings have caused bitcoin's price to rise.
Still, traders and miners have studied past halvings to try and gain an edge.
When the last halving happened on May 11, 2020, the price rose around 12% in the following week.
Later in the year, bitcoin began a sharp rally, but there were lots of explanations - including loose monetary policy and stay-at-home retail investors spending spare cash on cryptocurrencies - for this and no real evidence the halving was behind it.
An earlier halving occurred in July 2016. Bitcoin rose around 1.3% in the following week, before plunging a few weeks later.
In short: it's hard to isolate the impact, if any, halvings may have had in the past or predict what could happen this time around. Regulators have repeatedly warned that bitcoin is a speculative market, driven by hype and "FOMO" (Fear Of Missing Out), and poses real harm to investors, even as they simultaneously approve bitcoin trading products.
FAQs
The bitcoin halving reduces the block reward for miners by 50%, meaning the rate at which new bitcoins enter circulation is cut in half. While the immediate impact on bitcoin's price may not be significant, the halving is expected to have long-term effects on the supply-and-demand dynamics of the cryptocurrency.
Why is Bitcoin halving important? ›
The Bitcoin halving is a major event that only happens every four years. It has big implications for the supply of new Bitcoin coming into existence. Miners will see their rewards cut in half after the halving. In the past, this lowered supply has led to higher prices down the road.
Does Bitcoin halving increase the value? ›
"By slowing the rate at which new bitcoins are created, halving helps to maintain scarcity and potentially increase the cryptocurrency's value, assuming demand remains steady or increases." The first halving took place on Nov. 26, 2012; the second occurred on July 11, 2016; and the third happened on May 11, 2020.
Does Bitcoin go down after halving? ›
“While Bitcoin's price has historically risen before and after each halving event, it has not always been a straight line up. Following previous halvings, prices have often pulled back before reaching a new peak around 220 and 240 days later,” Stals says.
Is Bitcoin halving bullish or bearish? ›
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.
How much does BTC go up after halving? ›
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.
What happens when Bitcoin stops halving? ›
The last halving should occur in 2140. At that point, there will be 21 million BTC in circulation and no more coins will be created. From there, miners will just be paid with transaction fees.
Should you buy Bitcoin before or after halving? ›
“Bitcoin trading volume generally sees the most significant increase in the 60 days prior to halvings, as interest builds and prices gain momentum,” Megan Stals, a market analyst at trading platform Stake, tells Forbes Advisor.
What happens to price after halving? ›
What is the historical impact of Bitcoin halving on BTC's price? The historical correlation between halving events and the bitcoin price exists, with the price of bitcoin substantially increasing approximately six months after the halving days from 2012, 2017, and 2020.
Does halving affect price? ›
While the halving itself doesn't directly impact bitcoin's price, investors' anticipation of the event can lead to highly erratic price movements, says Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth.
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.
Is Ethereum affected by Bitcoin halving? ›
The Bitcoin cycle, which averages 3.5 years, was particularly emphasized. The impact of the Bitcoin halving is also noteworthy, especially in the formation of supercycle bubbles in 2021, which affected altcoins such as Ethereum.
How long will Bitcoin halving last? ›
With each halving, the rate at which new bitcoins are created slows down, and the final bitcoin is expected to be mined around the year 2140. This gradual reduction in supply will make Bitcoin increasingly scarce over time, potentially driving up its value as demand increases.
What is the prediction for the bitcoin halving in 2024? ›
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.
What is the next bitcoin halving cycle? ›
When is the next bitcoin halving? The next bitcoin halving is expected to occur in April 2024, when the number of blocks hits 740,000. It will see the block reward fall from 6.25 to 3.125 bitcoins.
What is the next date for bitcoin halving? ›
The next Bitcoin halving is estimated to take place on April 19th, 2024, only 19 days away now. Bitcoin miners that successfully validate transactions are currently awarded 6.25 new Bitcoin for each mined block. The halving will reduce the block reward to 3.125 BTC.
What is benefit of halving? ›
Occurring every four years, halvings are intended to keep Bitcoin inflation-resistant and has historically caused prices to soar. Bitcoin's “halving” is here. The event will see the supply of newly minted coin cut by 50%—this time it will drop from 6.25 to 3.125—and is expected in the coming hours.
How does Bitcoin halving affect the market? ›
“As the halving approaches, speculation typically increases, potentially leading to heightened volatility in the bitcoin market,” he says. “Investors might buy into bitcoin in anticipation of potential price increases, but there's no certainty or guarantee of that and, quite frankly, this only adds to the volatility.”
Is Bitcoin halving good or bad for miners? ›
The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins. The most efficient miners will be the ones best equipped to handle the halving, industry players say.
Why is crypto halving good? ›
The Bitcoin halving slashes the incentives rewarded to miners in half and takes place about once every four years, as mandated in the Bitcoin code. It's meant to slow the issuance of bitcoins, creating a scarcity effect and allowing the cryptocurrency to maintain its digital, gold-like quality.
