Experts have been debating the future of bitcoin since the first institutional money started arriving in the cryptocurrency market. Regardless of whether people are bullish or bearish on the digital currency, it is clear that investors are still excited about the opportunities it presents. And the next of these – the bitcoin halving event scheduled for this week – keeps the excitement high.
In 2024, there were two events that cryptocurrency enthusiasts predicted would strengthen bitcoin prices and spark reignited interest in the market. One of these was the approval of bitcoin ETFs in January. That event, as expected, brought billions of dollars in inflows to the 11 approved ETFs and sent bitcoin prices skyrocketing to an all-time high of $73,750.
The second event, the bitcoin halving, is approaching. This event has to do with the technological side of bitcoin; when that happens, the production of new bitcoins will be – wait for it – halved.
There is no set date for the halving event. This will instead happen after 210,000 blocks on the Bitcoin blockchain have been filled with data. Judging by the current pace at which the blockchain is being filled, experts expect this to happen on April 19 or 20. The event itself will mostly impact bitcoin miners, but it’s a big deal for most anyone connected to the asset. Here are some of the biggest changes brought about by the halving.
Miners will earn less bitcoin for their work
First, the bitcoin halving event will affect bitcoin miners. Since these are the people and companies producing bitcoin, the halving will mean their work will yield a much smaller reward than before.
Miners compete with each other all over the world, all the time. The bitcoin network presents these miners with intricate mathematical problems, which mining computers work to solve. When one of these miners solves a problem, it is recorded on the blockchain and the network creates a reward in new bitcoins, which goes to the miner.
It’s a profitable venture, but becomes less so as time goes by. For context, since the inception of Bitcoin, these halving events have occurred every four years. The first bitcoin miners earned 50 coins for their work. At the time of the first halving they would have only earned 25 bitcoins. After three halvings, miners now earn just 6.25 bitcoins per block. Come this weekend, they will earn just 3,125 per block, which equates to over $194,000 at current prices.
Bitcoin prices are likely to see an increase
Now, by understanding the mechanics of the halving, it may be easier to see the effect it could have on bitcoin prices.
For bitcoin investors, halving the production of new coins creates a bottleneck between supply and demand. In fiat currency terms, this would be like the US Mint suddenly deciding to halve its money printing volume every four years, which would result in the value of the US dollar skyrocketing.
To further demonstrate how the halving could drive bitcoin prices higher, imagine the increase in value the dollar would experience if it were a limited currency. There will only be about 21 million bitcoins ever mined. As bitcoin adoption continues to increase, the digital asset will increase its scarcity and its price will presumably rise accordingly. The production of bitcoin over time is intended to help increase its adoption, but slowing the influx of new bitcoin into the market will still keep demand high.
Given these factors and the historical context, it is likely that a price increase will follow the upcoming halving event. Past halving events have proven this, with each previous halving preceding staggering price increases. In 2020, for example, bitcoin prices increased from $8,610 to $11,588 in just three months.
Keep in mind that these shots tend to occur in the months after a halving event, rather than immediately afterwards. A recent report from JPMorgan states that the price of bitcoin could fall soon after the halving, largely due to the continued outflow of money from bitcoin investments such as ETFs.
Bitcoin’s energy consumption will increase
There is a lot of concern based on the energy consumption of cryptocurrency mining. The energy needed to mine bitcoin alone could power a medium-sized nation year-round. In America, cryptocurrency mining consumes nearly 2% of the country’s energy consumption. This weakening of power is largely why China has banned the practice entirely.
The upcoming halving will only make the situation worse as cryptocurrency miners will do the same amount of work for half the reward. Framed differently: It will take double the amount of energy to mine bitcoin now.
However, there is some nuance to this fact. As bitcoin mining becomes less profitable, miners will abandon the competition. Fewer miners mean less mining difficulty, which in turn means less energy consumption. In theory. If bitcoin prices rise as many expect with the halving, miners will not be incentivized to stop mining, but rather may be more galvanized if the asset’s price approaches its all-time high again.
Calls for bitcoin’s utility will get louder
Bitcoin is a polarizing topic, especially when its price is skyrocketing like it is in 2024. In times like these, both bulls and bears are more vocal, meaning even louder calls for bitcoin to become more useful as that a real currency could emerge.
Many bitcoin bulls have come to terms with bitcoin’s lack of practical use, instead seeing it as a store of value like gold. However, there is hope among that crowd that the digital asset will become a useful currency that can one day compete with fiat money like the USD.
Bears are also calling for bitcoin to find its use case. Many cryptoskeptics oppose the idea that bitcoin is a store of value, and not a currency, arguing that it has no real value giving credence to its price. So, until the development of bitcoin Some type of practical use, these criticisms of money will continue to persist.
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