Cryptocurrencies have spent the last year recovering from the bear market of 2022 and continue to rise as we approach 2024. Since early February, bitcoin has thrilled investors by surpassing the $50,000 mark, and experts have given reason to believe in further growth this year, thanks to the imminent halving date.
Bitcoin prices have tripled since January 2023, and much of the recent gains are attributed to the hype around two highly anticipated events in 2024. The first of these, the approval of 11 spot bitcoin ETFs by the Securities and Exchange Commission, occurred in January and resulted in inflows of billions of dollars. Just a month after this news broke, bitcoin surpassed $50,000, a value the asset hasn’t seen since 2021, en route to its all-time high of $68,789.
The next event, expected in April 2024, will slow the production of new bitcoin, which could seemingly push the price of the asset even higher. Here’s what cryptocurrency investors need to know about the upcoming bitcoin halving.
What is Bitcoin halving?
The bitcoin halving is an event that has occurred approximately every four years since the cryptocurrency’s inception in 2009. The halving dates do not directly impact bitcoin holders, but they imply behind-the-scenes actions that could bode well for the future value of the bitcoin. ‘asset.
Simply put, halving has to do with bitcoin mining — the process by which transactions are verified on the blockchain and new bitcoins are released into circulation. Miners are computers that create bitcoin, which is done by solving complex mathematical equations. Anyone, from the hobbyist miner using their home computer to large companies with barns full of mining rigs, can use their computing power to create bitcoin. When one of these computers solves a problem, the network rewards the miner with newly minted bitcoin, thus increasing the total number of coins in circulation.
However, there is a finite number of bitcoins that can be mined: 21 million to be precise. Of the 19.6 million currently in circulation, only 1.4 million have yet to be mined. When a halving event occurs, the bitcoin protocol halves the number of coins awarded to successful miners. Since 2020, miners have received 6.25 bitcoins for solving a problem. When the next halving occurs, miners will only receive $3,125,000.
The result is that after each halving the computing power needed to create new bitcoins doubles. In theory, the sharp decline in production will increase the value of the good, as demand for the good remains constant or grows.
When will the next Bitcoin halving happen?
A unique feature of the bitcoin halving is that, although it occurs approximately every four years, there is no set date for the next halving. Rather, it happens after 210,000 blocks on the Bitcoin blockchain have been filled with data. Although it takes approximately four years for all this mining to be completed, the specific day it will occur cannot be accurately predicted until the event is quite close to occurring. That said, experts estimate that the next halving will occur in mid-to-late April 2024, about two months from now.
These halving events will continue approximately every four years until the 21 million bitcoins that make up the total supply are mined. It is estimated that it will take until 2140 for this to happen.
Is it a good time to buy bitcoin?
With the bitcoin halving upon us, is now the time to invest in bitcoin? Previous instances have set a precedent for price increases; in the months following each of the past three halvings, the asset appreciated significantly. The last halving, which occurred in May 2020, saw the cryptocurrency add $2,000 to its value over the following three months. However, the reasons why bitcoin prices go up or down are complicated and don’t always make sense; during that year, the coin skyrocketed from around $7,194 to $32,810 with little news.
Experts are largely bullish on the year ahead for the cryptocurrency, and the bitcoin spot ETF backdrop and halving help explain why. Martin Leinweber, digital asset product strategist at MarketVector Indexes, tells Money that demand for bitcoin products is extremely high.
“Investors had previously said the $5-10 billion mark would be achieved [in net inflows to bitcoin ETFs] in the first three months it would be an unprecedented success,” he says. «Now, Black Rock [alone] is on pace to surpass $5 billion in assets under management within 23 trading days, placing it in the top 7% of all ETFs by size.”
Leinweber uses this example to illustrate the fact that demand for bitcoin already far exceeds available supply.
“A broader range of investors are dedicating a portion of their assets to bitcoin,” he says. “Large portfolio managers are now incorporating this new asset class into their allocations.”
Given that this is already happening, a 50% slowdown in the production of new bitcoin after the halving will only further fuel demand. There are obvious expectations for a price increase around the halving, but investors should not expect a guaranteed moon shot.
“Buying before the halving carries volatility risks,” says Dan Weiskopf, portfolio manager at ETF firm Amplify. Weiskopf says the momentum already generated by recent bitcoin ETF approvals will likely continue to drive prices higher before the halving, but he reminds investors they should be patient and expect volatility. “[Do] Don’t expect every day to be a straight line, up 3%-5%,” he says.
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