Halving BTC: everything you need to know

5 MIN READ
Cryptocurrency
29 February 2024
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Bitcoin halving is an event that halves the reward for mining new blocks in the bitcoin blockchain. This happens roughly every four years and is part of bitcoin's original algorithm as conceived by its creator, Satoshi Nakamoto. But why is it such a big deal? And how can it affect the bitcoin price and your trading strategies? Let's get to the bottom of it.

History of halving

The history of bitcoin halving is the history of the change in reward for miners after every 210,000 blocks in the bitcoin blockchain. Halving dates:

  • First Halving (November 28, 2012). The first halving reduced the block reward from 50 BTC to 25 BTC. This was bitcoin's first experience in reducing the reward and an event that caught the attention of investors.
  • Second Halving (July 9, 2016). The second halving reduced the block reward from 25 BTC to 12.5 BTC. This happened at a time when bitcoin was becoming more well-known and popular.
  • Third Halving (May 11, 2020). The third halving reduced the block reward from 12.5 BTC to 6.25 BTC. This event coincided with increased interest in the cryptocurrency from institutional investors and financial organizations.
  • Fourth halving (around 2024). The next halving is expected about four years after the third, leading to an additional decrease in block reward.
Bitcoin halving

How does bitcoin halving work technically?

Technically, halving is part of the bitcoin protocol that takes effect after every 210,000 blocks are created, which is approximately four years. After this event, the reward for mining is reduced by half.

The impact of halving on the bitcoin price

By analyzing the changes in the bitcoin price during the two years around the three previous halving events - the year before and after each of them - it is possible to catch some pattern in the movement of the price of this cryptocurrency, waiting for the next, fourth halving to approach. During such periods in 2012, 2016, and 2020, bitcoin showed growth of 30,000%, 786%, and 712% respectively. Based on this data, we can assume that by 2025, the price of bitcoin could soar to $220k if the trend continues.

However, it is worth remembering that past achievements are not a reliable indicator of future results. The bitcoin exchange rate is affected by many factors, and over time, as it integrates into the financial world, volatility may decrease and stability may increase.

With each bitcoin halving, selling pressure is also expected to decrease, especially from miners, who often act as sellers to cover operating costs (electricity, equipment maintenance and repair, etc.) by exchanging mined bitcoins for fiat. A halving of the reward for mining a block leads to a decrease in the volume of coins sold by miners. Assuming that demand remains stable or even increases, the price of bitcoin, according to the principles of economics, should increase.

halving

Why is bitcoin halving necessary?

Simply put, halving bitcoin is like regular road repairs that are needed to keep things running smoothly, only in the case of bitcoin, the "repair" is to reduce the number of new coins that miners receive for mining a block.

Halving also serves such purposes:

First, it is built into the very design of bitcoin to prevent inflation. If bitcoins continued to be issued in the same quantity forever, sooner or later there would be too many of them, and as a consequence, their value would drop. Imagine if the world suddenly had twice as much gold. It would still be valuable, of course, but not as valuable as it used to be, right?

The second reason is to create scarcity. When a resource is mined less and less often, its value usually increases. Halving makes new bitcoins more rare, which can push their value up. It's like a limited edition game: when it's known that the game's release is limited, everyone wants to get their hands on it, and the price goes up.

Third. Halving is helping bitcoin slowly but surely move towards its maximum limit of 21 million coins. It's like saying to everyone, "Guys, bitcoins are not infinite, let's appreciate what we have." This mechanism helps control the amount of bitcoins in the market, making it predictable and stable for the long term.

Fourth, halving is an event that always draws attention to bitcoin. It's like a big celebration for the crypto community when everyone starts talking about bitcoin, speculating on its value and making predictions. This increases interest in cryptocurrency in general and can attract new participants to the market.

When to expect the next halving?

Bitcoin's next halving is predicted to occur in early April 2024 when the block height reaches 840,000. Significant volatility is already visible in the cryptocurrency market and the chart of bitcoin itself.

How does the halving affect the price of altcoins?

On the eve of the bitcoin halving, it's as if the entire cryptoworld is coming to life: projects are hiring new employees, everyone is preparing for the next bull market, which usually begins with this event. And this is not bypassing altcoins either. Many investors are starting to look at cryptocurrencies in a new way, believing in their possible growth. This optimism can cause them to invest more in altcoins, which in turn can drive their value upward. Plus, with bitcoin mining rewards decreasing, some miners may decide to seek happiness in the altcoin world, where rewards remain more attractive for now.

What not to do before and after halving?

Many investors have come to believe that a wild rise in bitcoin is imminent after the halving. But the market is getting smarter, there are more players who are successfully manipulating the mood of the crowd. Yes, this could be a trigger for growth, but we can't be sure. Most retail traders, of course, are expecting growth already after the reduction of the reward for mining. Recent events in the crypto world have been interesting in that the growth of coins happened exactly before, not after their realization.

The Cryptology team recommends:

  1. Steer clear of the sentiment of the masses. History is not always cyclical.
  2. Control your risks. Don't go all-in
  3. Look for entry points before, not after.
  4. Be skeptical of all forecasts.
  5. Do not expect a huge profit here and now, because the real growth of the bitcoin price can begin months after the halving. That's when people's sentiment will drastically deteriorate.

Conclusion from Cryptology experts

The year 2024 will be a milestone for the cryptocurrency market as a whole, and the coming halving will be a turning point. But it's important to note that whatever the predictions, past performance does not guarantee the same outcome in the future, and financial markets are unpredictable. Therefore, we encourage investors to maintain a balanced perspective and exercise prudence in their decision making, and to do their own research.

Frequently asked questions about halving

How many more bitcoin halwings will there be?

Halving will continue until the last bitcoin is mined, which is estimated to happen around 2140.

Could halving cause the price of bitcoin to fall?

In the short term, the price can fall as well as rise; the cryptocurrency market is unpredictable. However, historically, the bitcoin price has shown growth after halving.

Will bitcoin grow after halving?

Despite the fact that previous bitcoin halwings caused serious price spikes, we cannot say with 100% certainty that history will repeat itself this time. However, there are experts who are still inclined to believe that a price rise is quite likely.
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