What is Bitcoin Halving?

The Bitcoin halving – the phenomenon. The event that spikes the most interest in the crypto ‘world’, as some people call it. The most recent halving happened on April 19th, only a few days ago, so it’s the perfect time to discuss how the market reacted. If the market were to react positively and push the value close to Bitcoin’s all-time highest price of $73,780.07, as shown on the Binance website, it should start doing it any time soon at the time of writing.

We’re sorry to tell you that hasn’t happened. Yes, the market responded positively with a recent 2.86% at $66,560.39, but we’re far from the highest all-time price. Shares of public crypto miners had more of a positive sentiment – Marathon Digital increased by 6% and Riot Platforms by a massive 23%. And we can see why – the coins are becoming rare, and mining should increase. Read on to learn more.

Understanding Bitcoin Halving

Bitcoin halving is usually a massive event – this year, it seems different. The reaction hasn’t been as strong, the headlines aren’t as buzzing, and nobody seems too bothered. Perhaps the EFT hype is overshadowing the halving.

This event aligns with Bitcoin’s foundational principle – capping its total supply at 21 million coins. Halving impacts the mining process – a crucial element of Bitcoin’s blockchain technology.

Here’s what typically happens:

Mechanism and Purpose of Halving

The process occurs every 210,000 blocks – historically taking approximately four years to mine, hence why the halving happens every four years.

Initially, the reward for mining a block started at 50 BTC and halved at each event, making the mining reward progressively smaller. You could call Bitcoin a rare commodity. In the 2024 halving, the reward was reduced from 6.25 BTC to 3.125 BTC. This systematic reduction is a pre-programmed response to Bitcoin’s decreasing availability. It’s intended to control the flow of new Bitcoins into the market and prevent inflation.

By decreasing the reward for miners, halving limits the rate at which new bitcoins are created and enter circulation. And, thus, the value of Bitcoin increases.

Economic Implications

From an economic viewpoint, you get higher prices if we consider the basic principle of the supply-demand relationship. Assuming constant or rising demands amid slowing down supply growth rates, theoretically speaking, costs should go up accordingly so long as everything else remains equal.

Reduced block rewards make transaction fees a more essential part of revenue earned by miners. As much as with each reduction, transaction fees become a significant source of what miners get paid for, including their transaction blocks. Rewards become smaller over time without these fees.

Is there any point in being a miner? Mining a Bitcoin depends on energy rates per Kwh. On average, it costs $11,000K to mine a Bitcoin at 10 cents per kWh. The average price of energy per kWh in the US is 15.45 cents, so you do the math. It’s actually worth it when you consider the value of one Bitcoin is $63,722.39 at the time of writing.

Historical Impact on Bitcoin’s Value

According to history, when halving occurs, there has always been an upward swing in bitcoins price between 12 to 18 months – but no longer than 18 months. That implies that if the demand remains constant or increases, prices will rise as supply gets limited (due to halving). For example – in 2012, it was followed by huge surges. In 2016, it was also followed by tremendous price hikes, and again, in 2020, it followed the same trend, which shows us that scarcity does drive up value…sometimes.

The 2024 Halving and Its Context

During this year’s event people were expecting something big mainly because more institutional investors had joined the market, hence making a lot of noise about ETF approvals, etc. That alone brought about stability since, traditionally, bitcoin was always too volatile.

Support from banks changed everything overnight. Demand went higher as supply reduced, pushing prices up beyond anyone’s imagination. During the first quarter of 2024, Bitcoin reported gains of 67% on a year-to-date (YTD) basis. The halving will push that further.

And it’s actually the EFTs that most people are talking about around the halving. They transformed the cryptocurrency market into a regulated and safe place to invest money. That attracted huge amounts of institutional capital. It was so significant that bitcoin became less volatile, which made more investors feel safe about it.

There’s nothing else to say about the halving – we’re only one-week post-halving. We’ve given you all the statistics we can. Follow Bitcoin for the next year to see how it changes. Some headlines call it a non-event for most investors – whereas previous halvings were a big deal.

Broader Market Effects: Altcoins and Innovation

Interestingly, Altcoins and other coins have had more of a reaction. Following the 2024 halving, while Bitcoin continued to perform robustly, many altcoins multiplied in value at a faster rate, a phenomenon commonly referred to as ‘altcoin season.’ And let’s not get us started on how meme coins have been doing – SHIB has increased by over 205% in the last six months – lucky SHIB owners!

This period is marked by investors diversifying their portfolios beyond Bitcoin, driven by the reduced relative growth potential of Bitcoin compared to lesser-known cryptocurrencies. Historically, the wider market improved by three times its value in 2020 and over 20 times in 2021.

The Bitcoin halving of 2024 underscores a maturing market that continues to evolve with new regulatory frameworks and a widening investor base. While the immediate effects on Bitcoin’s price reflect historical trends, the ongoing developments in cryptocurrency markets and technology predict it might not have the same reaction. Still, it’s early days, so it’ll be interesting to see how the coin reacts over the next 12 to 18 months. Historically, it surges for seven months before calming down.