The 'Halving' Event: Impact on Bitcoin's Value

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The quadrennial “halving” is almost upon us.

Believe it or not, the term "halving" may sound a bit scary or mysterious, but it's really just a routine process built into bitcoin's design.

In simple terms, the halving involves cutting the number of new bitcoins entering the market by half. This is meant to boost the value of the cryptocurrency and prevent inflation from getting out of hand.

The halving is like the World Cup for crypto believers, occurring every four years and stirring up strong emotions.

According to Antoni Trenchev, co-founder of crypto lender Nexo, predicting Bitcoin's future after each halving is an exciting challenge. Based on past halvings, he believes it may only take around eight months for Bitcoin's price to double.

Many bitcoin enthusiasts share a very optimistic outlook on the future of the digital currency.

In March, Bitcoin reached an all-time high of $73,750, thanks to a combination of excitement from investors following the halving and the approval of multiple bitcoin-based exchange-traded funds (ETFs) by regulators in the United States.

Mainstream investors have found a way to invest in bitcoin's movements without directly owning the digital currency thanks to financial instruments. This has led to billions of dollars flowing into bitcoin, causing its value to increase by 40% this year.

The timing of the halving event is not exact, as it depends on the rate at which new bitcoin tokens are created through the mining process.

Most estimates indicate that the halving event will take place this Friday night, April 19, for those in the eastern United States, or in the morning on Saturday, April 20, for those in Asia-Pacific.

According to Gareth Rhodes, managing director at research and advisory firm Pacific Street, historically every halving has led to a bullish price movement. This is because the supply constraints typically result in an increase in prices.

In this photo illustration taken in Paris, France on February 13, 2024, we can see a visual representation of the digital cryptocurrency Bitcoin. Bitcoin has just surpassed the $50,000 mark for the first time in two years. As the largest cryptocurrency in the world, Bitcoin has recently gained approval from the US Securities and Exchange Commission to enable the trading of bitcoin exchange-traded funds.

Chesnot/Getty Images

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Bitcoin excitement is on the rise again as investors gear up for the quadrennial 'halving'.

In 2020, the reward for bitcoin miners decreased from 12.5 bitcoin to 6.25. Now, it will be reduced further from 6.25 to 3.125. Miners act as auditors on the bitcoin blockchain, using advanced supercomputers to confirm transactions and receiving payment in the form of bitcoin.

There are many crypto skeptics who caution that digital assets have not yet proven their real-world use case and are considered risky investments at best.

Molly White, a software engineer and well-known crypto critic, pointed out in her newsletter Citation Needed that it is unclear to what extent past price movements were influenced by the halving, as opposed to being simply associated with it. She noted that the previous halving in May 2020 occurred during significant macroeconomic changes at the start of the Covid-19 pandemic, leading to an influx of money into riskier asset classes and attracting pandemic-driven day traders to crypto.

Villanova University finance professor John Sedunov warned that there is no guarantee bitcoin's past success will happen again. He pointed out that the current macro environment and potential increases in mining costs could impact its performance.

Bitcoin is designed to have a maximum limit of 21 million coins, creating scarcity that supporters believe adds value. Critics, like Jamie Dimon from JPMorgan Chase, argue that this artificial scarcity does not actually generate true value.

Bitcoin enthusiasts are optimistic about its long-term prospects, but predicting the impact of events like the halving on market psychology is challenging. The resulting volatility can be especially high in the world of cryptocurrency.

Greg Beard, the CEO of Stronghold Digital Mining, expressed his views on the halving in a statement. He noted that while there has been some excessive hype surrounding the event, the recent bitcoin price surges are more than just a passing trend.

“Bitcoin is maturing with institutional adoption,” Beard said. “It wouldn’t be surprising to see the price of bitcoin increase significantly over the next two years.”

Editor's P/S:

The upcoming Bitcoin halving, a predetermined event that reduces the issuance of new bitcoins by half, has sparked both excitement and skepticism among crypto enthusiasts and skeptics alike. Optimists predict a substantial increase in Bitcoin's value, citing historical trends that have followed previous halvings. They believe the supply constraints will lead to a surge in demand, driving up prices. However, skeptics caution against relying solely on historical patterns, emphasizing the influence of external factors such as macroeconomic conditions and pandemic-related effects on past price movements. They also question the inherent value of Bitcoin's artificial scarcity, arguing that it does not guarantee true value.

Overall, the halving event highlights the dynamic and volatile nature of cryptocurrency markets. While some investors see it as a potential catalyst for growth, others approach it with a cautious outlook, acknowledging the risks associated with speculative assets. The true impact of the halving on Bitcoin's price and the broader cryptocurrency landscape remains uncertain, making it crucial for investors to conduct thorough research and proceed with caution.