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What you need to know before the Bitcoin halving
Key points
- The next Bitcoin halving is expected to take place on Friday or Saturday.
- The event will halve the current bitcoin block subsidy from 6.25 to 3.125 bitcoins.
- Previous halvings drove the price of bitcoin to new all-time highs in the following months. This time, the price of bitcoin already rose to record highs last month ahead of the halving event, the first time this has happened.
- As bitcoin miners’ revenue declines over time, experts say the industry will have to move toward a model based on transaction fees rather than issuing new bitcoins.
The bitcoin halving, in which the amount of newly issued bitcoins created roughly every ten minutes is halved, is expected to occur on Friday or Saturday. In the past, this event has been followed by a significant increase in the price of bitcoin, but analysts are divided on whether this will happen this time.
Bitcoin (Bitcoin) has already reached an all-time high above $73,000 last month, the first record reached before a halving event, although the price has declined in recent weeks. On Thursday morning, bitcoin was trading around $63,500, after falling below $60,000 on Wednesday.
What will happen at Halving?
After the halving, incentives for bitcoin miners and the pace of issuing new bitcoins will halve. This is one of the rules of the network that was “set in stone” by the creator of Bitcoin Satoshi Nakamoto.
In short words, bitcoin mining it is the process by which all transactions on the Bitcoin blockchain are verified and new bitcoins are minted. The first miners to successfully validate a to block containing transaction information are rewarded for their efforts.
This reward is made up of both a block grant and transaction fees. The block subsidy is a newly created bitcoin that is coming into existence for the first time and has historically made up the majority of the value of the block reward.
While the block the reward Originally priced at 50 bitcoins when the network launched in January 2009, it has since halved after every 210,000 blocks, or roughly every four years, on a predetermined schedule. After the upcoming halving, the block reward will drop to 3,125 bitcoins from the current 6.25 bitcoins.
While new blocks should be found approximately every ten minutes, block durations can vary in the short term based on the amount of computing power staked on the network. That said, block times are recalibrated to the target ten-minute window roughly every two weeks via mining difficulty adjustments.
What does the halving mean for the price of Bitcoin?
Although the general halving timetable is known to the market in advance, the 50% drop in the regular creation of new bitcoins is believed to lead to an alteration in the supply and demand dynamics of the cryptoasset. The price of bitcoin reached a new all-time high in the months following each of the three previous halvings.
Analysts say this The bitcoin halving is different for a variety of reasons and that a bitcoin rally may not occur.
The largest cryptocurrency by market capitalization reached a new all-time high in this four-year cycle before the actual halving occurred for the first time in its history. Bitcoin demand from spot bitcoin exchange traded funds (ETF) was widely credited for the rally. Many analysts believe that a supply-demand imbalance due to increased demand from ETFs and limited supply after the halving could push bitcoin prices higher.
Analysts at Deutsche Bank say the halving is “partially priced in” and that they do not “expect prices to increase significantly after the halving event.”
Other analysts are worried higher interest rates for longer periods create riskier assets such as less attractive cryptocurrencies as Treasury yields remain high.
“If the BTC halving next week turns out to be a ‘buy the rumor, sell the news’ it will likely have less impact on BTC’s medium-term outlook, as BTC price performance will likely continue to be driven by the aforementioned dynamic demand -continued supply and demand for BTC ETFs, which combined with the self-reflexive nature of cryptocurrency markets is the primary determinant of spot price action,” Goldman Sachs analysts wrote in a note last week, according to Coindesk.
Bitcoin is definitely suffering from some pre-halving jitters. After creating several price records in March, bitcoin price has seen a more pronounced downtrend since April 8. However, this is not the first time this has happened, as the price of bitcoin fell before the halving that occurred in 2016 before ultimately reaching a new all-time high by next year.
How the Bitcoin halving may affect some stocks
In theory, there are three types of stocks that could be affected by the bitcoin halving: miners, companies that hold bitcoin, and bitcoin trading platforms.
Bitcoin mining stocks
As the incentive for mining is halved, this puts bitcoin miners’ revenues and consequently stock prices at risk.
Stocks of bitcoin miners like Marathon Digital (MARA), Riot control platforms (REVOLT), Hut8 (HUT), Cipher Mining (CIFR) and TerraWulf (WULF) have each lost about a fifth of their value in the eight days since bitcoin’s decline began on April 8, although they have gained ground in recent days.
TradingView
Some analysts suggest that rising bitcoin prices may be able to offset the impact of fewer bitcoin rewards, but miners may have to look ways to apply makeup for the long-term gap ahead of the next halving cycle.
Bitcoin investors and trading platforms
As of March 18, MicroStrategy (MSTR) held more than 214,246 bitcoins in its portfolio, and that large position may impact its stock price if bitcoin trends decline. MicroStrategy shares have lasted a quarter of their value this month.
Any volatility around the halving would mean higher trading volumes, something that could affect trading platforms like Coinbase (CURRENCY) or Robinhood (HOOD). However, even if trading volumes resume this week, Needham analysts said the impact of the halving could be overshadowed by larger bitcoin volume events for the two trading platforms, Barron’s reported.