What is Bitcoin halving and when will it take place?

While Bitcoin has reached record peaks over the past months, some projections put it at crossing the $100,000 mark after the upcoming ‘halving’ event.

In an April 8 report, Bitfinex analysts predicted bitcoin‘s price would soar about 160 per cent in the 12-14 months after this year’s halving, which they said could push bitcoin to an all-time high of more than $150,000.

“This current cycle stands out from all the other previous cycles as the bitcoin price has already achieved a new all-time high – even before the halving. This anomaly could be interpreted as a bullish indicator, yet it also introduces a level of uncertainty into the market dynamics,” the report said.

But what is halving and why will it impact the price of the cryptocurrency?

In short, the upcoming Bitcoin ‘halving’, a change in the token’s underlying blockchain technology is designed to reduce the rate at which new bitcoins are created.

Here is a simple explainer:

What is Bitcoin halving and why is it significant?

Bitcoin halving is a technical event that occurs approximately every four years, reducing the reward for mining new Bitcoin by half. It is crucial because it ensures scarcity in the supply of Bitcoin and safeguards against inflation.

When is the next Bitcoin halving event?

The next Bitcoin halving event is expected to take place on April 19 or April 20, reducing the mining reward to 3.125 Bitcoin. This process will continue until roughly 2140, with a total of 29 more halving events expected as per data platform CoinGecko.

But this time around, the market is split on whether bitcoin could be in for another meteoric rise.

What has happened after previous Bitcoin halving events?

Historically, Bitcoin halving events have led to significant increases in the price of the cryptocurrency.

After previous halvings, Bitcoin’s price surged, indicating increased investor interest and confidence in its value.

Previous bitcoin halvings in 2012, 2016 and 2020 were followed by massive rallies in its price: a year after the May 2020 bitcoin halving, bitcoin BTC= was up more than 545 per cent.

However, David Mercer, CEO of LMAX Group, which operates an institutional crypto exchange, is among the skeptics which does not see the upcoming price projections becoming a reality. “The view from the grown-up market is this: 2012, 2016, 2020, the halving preceded a massive bull run, so the evangelist will tell you, 2024 is going to be the same. We think not.”

The reason? Some analysts say the impact of the halving could have already been priced into Bitcoin‘s recent move skyward. 

Bitcoin hit an all-time high in March at $73,803.25, and has risen more than 60 per cent since January 1 as investors cheered new US spot bitcoin exchange-traded funds (ETFs) and bet on the entry of new institutional money into the asset class.

The bitcoin ETFs “brought in a tremendous amount of interest and net new flows into bitcoin preceding the halving event, whereas in the past, we’ve seen price levels right after the halving event bring in those new flows,” said Thomas Perfumo, head of strategy at crypto exchange Kraken.

How long will Bitcoin mining continue?

Bitcoin mining will continue until approximately 2140, when all 21 million Bitcoin are expected to be mined. After this point, the network will stop creating new bitcoins, but miners could still earn income from transaction fees.

Will miners experience losses after the reward is halved?

While the reduction in block rewards could impact miners in the short run, Bitcoin’s price is expected to rise after halving events. This increase in price typically compensates miners for the reduced block rewards, ensuring profitability.

Additionally, external events such as the US Federal Reserve expected rate cut this year could boost risk assets such as cryptocurrencies.

“You have a simultaneous influx of new money into the asset class, finally, by way of the ETF … then there’s also the Fed, indicating that they plan on easing monetary policy later this year,” said Ravi Doshi, head of markets at FalconX, a crypto prime broker.

“Assuming that inflation prints continue to stay muted, you have this recipe for significantly higher prices.”

How does Bitcoin halving affect the environment?

Bitcoin mining consumes significant amounts of energy, raising concerns about its environmental impact. With every halving, competition among miners increases, leading to the adoption of more energy-efficient mining equipment.

While halving may contribute to slight improvements in energy efficiency, it does not fundamentally address Bitcoin’s environmental impact.