Bitcoin Halving 101 - What to Expect?

The crypto world has transformed by a great deal since 2009, when Bitcoin was first introduced to the public. What was once an unpopular asset for many, Bitcoin has grown to become the world’s largest and most liquid digital asset, and the rapid acceleration of its significance continues to greatly influence the sentiment towards the crypto market as a whole.

Despite the abundance of cryptocurrencies today, Bitcoin’s market dominance represents half of the total crypto market capitalization of $2.76 trillion, and there are over 23,000 cryptocurrencies in existence! Practically, this points to the fact the behavior of Bitcoin, regarded as the father of all cryptocurrencies, is a significant driver to the direction of all other cryptocurrencies, also known as altcoins.

The hot topic of crypto and the realm of financial markets surrounds the halving of Bitcoin; a gamechanger of an event which occurs once every four years.

What is Bitcoin halving?

Before shedding light on this phenomenon, it’s noteworthy to understand the concept of Bitcoin mining. Simply put, it refers to a computer system which secures and verifies BTC transactions. “Miners” process and validate “blocks” which contain transactions, and are rewarded for it in BTC as a portion of the overall transaction fees.

So, what's all the fuss about Bitcoin halving? Simply put, Bitcoin halving is a highly-anticipated event when the rate at which new BTC created is reduced, and the reward for mining Bitcoin transactions is cut in half. This means that miners will receive 3.125 Bitcoin per block mined instead of 6.25 Bitcoin. Every four years, after 210,000 blocks are mined, the block reward provided to Bitcoin miners for validating transactions undergoes a halving, effectively reducing the rate at which new Bitcoins are introduced into circulation by half.

This phenomenon is projected to persist until 2140, where the envisioned cap of 21 million coins in circulation will be reached. Afterward, miners will receive fees for processing transactions paid by network users, ensuring their continued motivation to participate in the maintenance and efficacy of Bitcoin's vast ecosystem.

How will Bitcoin halving affect price?

In the scope of the traditional financial system, printing fiat money increases supply and thus causes inflation; what $1 can purchase today is more than that of tomorrow. On the other hand, Bitcoin supply will be effectively reduced. Given robust demand, basic economic principles suggest that the price of Bitcoin should then increase.

This characterizes Bitcoin as digital gold with finite supply, and the upcoming halving event projected to take place in April of 2024 shall boost its scarcity.

While Bitcoin halving can present lucrative profit-making opportunities for Bitcoin traders and investors, things may become more difficult for lone miners in light of mining difficulty; the computational power is needed to mine Bitcoin. The higher the difficulty, the harder it is to profit from this activity.

How will Bitcoin halving affect traders?

Typically, Bitcoin halving comes with increased trading activity from both BTC buyers and sellers, which hence increases price volatility. This provides BTC traders, especially those with a short-term scope, with the opportunity to capitalize on sharp increases in price. For long-term traders and investors, low & high Bitcoin valuations could pose as attractive entry & exit points.

Given the ongoing transformation and continuous reshaping of the crypto space, hand-in-hand with the upcoming halving event, it is expected that Bitcoin will be quite the volatile cryptocurrency in 2024.

Summary

Bitcoin halving is a phenomenon that occurs every four years. It is when the rate at which new Bitcoins are created and fed into market circulations is slashed by half, while also reducing the BTC mining reward by half. The next Bitcoin halving is expected to occur in April of 2024, where BTC miners will receive 3.125 BTC per block mined, which is 50% less than the current reward of 6.25 BTC.

Miners utilize a computer system to process and validate blocks which contain Bitcoin transactions. The halving effect comes with increased difficulty for miners to undergo this task, which effectively means that more computational power is needed to mine one block. Given that the rate at which new BTC is being introduced into circulation, Bitcoin will become more scarce then ever.

In economic terms, less supply paired with high demand should increase the value and hence the price of Bitcoin. This presents lucrative investment and trading opportunities for short-term and long-term Bitcoin traders and investors, as price volatility is expected to ensue as the halving date nears.

Before trading cryptocurrencies, it is always advised to be informed about the current trends surrounding the crypto industry, the mechanism of trading cryptocurrencies and the risks associated with it. Explore the latest market revelations via the BITmarkets News portal, and learn more about cryptocurrency trading, concepts and strategies by visiting our Academy hub.