Bitcoin Halving: Explanation, Countdown & Price Prediction [2024]

Bitcoin, the decentralized digital asset, has undergone several halvings since its inception in 2009. These halvings are significant events in the cryptocurrency world, impacting the rate at which new bitcoins are created and earned by miners. Let’s delve deeper into the concept of Bitcoin halving, its implications, and when the next one is expected.

Bitcoin Halving Countdown: When Is the Next Halving?

The next Bitcoin halving is anticipated to occur in April 2024. At this point, the block reward will decrease from 6.25 to 3.125 bitcoins. This will be the fourth halving since Bitcoin’s inception.

What Is Bitcoin Halving?

Bitcoin halving is a regular event where the rewards in the form of Bitcoin that miners receive for providing their computational power are halved. This reward, known as the block reward, is halved with every halving event, resulting in fewer bitcoins entering circulation over time.

Miners play a crucial role in the Bitcoin network by validating and adding new transactions to the blockchain. For every block they add, they receive a reward in bitcoins. This reward incentivizes miners to continue their work, ensuring the security and functionality of the Bitcoin network. However, with every halving, this reward is reduced by 50%.

The halving mechanism ensures that the total number of bitcoins that will ever exist is capped at just under 21 million. This scarcity is a fundamental feature of Bitcoin, reducing inflation and ensuring its value as a deflationary asset by time. The last bitcoin is expected to be mined around the year 2140.

Bitcoin Halving in Detail

Delving deeper into the world of Bitcoin, the halving event stands out as a significant milestone in its lifecycle. This mechanism, embedded within Bitcoin’s code, ensures its scarcity and shapes its economic model. In this section, we’ll unpack the intricacies of the Bitcoin Halving.

What Happens When Bitcoin Halves?

Bitcoin halving is a pre-programmed event in the Bitcoin protocol where the reward for mining new blocks is halved. This means that miners receive 50% fewer bitcoins for verifying transactions. The primary purpose of this halving is to ensure the limitation of existing Bitcoin, thereby reducing inflation. The last Bitcoin halving occurred on May 11, 2020, and the next is planned for April, 2024. This halving process will continue approximately every four years until the maximum Bitcoin quantity is reached, which is expected to be in 2140.

The Halving of Bitcoin Mining Rewards

The rewards for Bitcoin mining, known as “Block Rewards,” are embedded in the code. In 2009, the block reward was 50 Bitcoin. These rewards represent the primary incentives for Bitcoin mining. The Bitcoin halving reward reduces regularly after every 210,000 blocks, approximately every four years, by half. After the first Bitcoin halving, the reward for miners was 22.5 Bitcoin, after the second halving it was 12.5 Bitcoin, and currently, the block reward stands at 6.25 Bitcoin. Approximately every ten minutes, a new block is added to the blockchain, creating about 6.25 new bitcoins. The speed of this production is dependent on the hash rate in the Bitcoin network.

Impacts of the Halving on Miners

The halving of block rewards has significant effects on the Bitcoin market and its price. After each halving event, the selling pressure from Bitcoin miners decreases, which means there’s suddenly much less Bitcoin available. This is because, immediately after the halving, Bitcoin miners receive only half of their previous earnings. Economically, it makes sense for a miner to hold onto their Bitcoin, thereby reducing the available supply and waiting for rising prices due to the resulting scarcity. As a result, the Bitcoin price is expected to stabilize and, after some time, to rise.

Proof-of-Work (PoW) – A Brief Explanation

Proof-of-Work (PoW) is the consensus algorithm used by Bitcoin to validate transactions and add new blocks to the blockchain. In PoW, miners compete to solve complex mathematical problems using computational power. The first one to solve the problem gets to add a new block to the blockchain and is rewarded with newly minted bitcoins. This process is resource-intensive, ensuring the security and integrity of the Bitcoin network. The PoW mechanism makes it costly and time-consuming to produce new blocks, thus deterring malicious activities such as double-spending and ensuring the decentralization of the network.

The Role of Halving in Controlling Bitcoin’s Inflation and Deflation

Bitcoin’s unique monetary design hinges on its controlled supply, ensuring its value proposition in a world of ever-changing fiat currencies. The individual or collective entity responsible for inventing Bitcoin (Satoshi Nakamoto), aimed to establish a digital currency characterized by a controlled and limited supply. The process of halving mining rewards serves to diminish the pace at which new Bitcoin is created. As a result of its increasing scarcity over time, Bitcoin presents an attractive value proposition as a deflationary asset.

The Monetary Policy of Bitcoin

Bitcoin’s monetary policy is unique in that it is pre-determined and transparent. The total supply of Bitcoin is capped at 21 million, ensuring its scarcity. The Bitcoin halving mechanism is a crucial part of this policy. By halving the mining rewards approximately every four years, the rate at which new bitcoins are introduced into the system is reduced. This mechanism serves as a controlled form of inflation. When new bitcoins are produced, it primarily means the money supply increases. If the money supply grows at the same rate as the number of people using the currency, the price can remain stable, and inflation is prevented. If demand rises faster than the money supply, the currency’s value increases, benefiting its holders.

Bitcoin Halving and Its Effects on the BTC Price

Historical data has often shown a correlation between Bitcoin Halving events and its price fluctuations. Anticipated reductions in supply and growing demand have fostered a positive market sentiment and the likelihood of price appreciation. Nevertheless, it is essential to bear in mind that historical performance does not assure future outcomes, and various factors beyond halving events contribute to fluctuations in Bitcoin’s price.

Overview of All Previous Bitcoin Halvings

Bitcoin Halving and the following approximate price development (Source: https://cointelegraph.com).

Is Halving the Primary Driver of Bitcoin Price?

While halving undeniably influences Bitcoin’s price, is it the sole catalyst? This section seeks to unravel the broader factors at play, examining whether the halving stands as the primary driver or if other elements equally sway Bitcoin’s market trajectory.

The Stock-to-Flow Model

The Stock-to-Flow (S2F) model is a popular method used to predict Bitcoin’s price. The model works by comparing the amount of a commodity held in reserves (stock) to the amount of that commodity produced annually (flow). In the case of Bitcoin, the “stock” represents the existing supply of bitcoins, and the “flow” represents the new bitcoins created per year through mining. Prominent crypto analyst PlanB has applied the S2F model to Bitcoin, projecting its price in relation to halving events. The model has been largely accurate in predicting Bitcoin’s price trajectory in relation to its halving events. Nonetheless, the model only takes into account the Bitcoin supply and does not factor in demand dynamics. Additionally, the model exhibited discrepancies in response to macroeconomic events such as increases in interest rates or political conflicts.

The Debate Surrounding the Impact of Bitcoin Halving on the Market

While the Bitcoin halving is often seen as a primary catalyst for new price highs, other factors might also play a role. Recent macroeconomic events, such as rising interest rates, have become part of the discussion. As a continuously traded market across borders, Bitcoin could be susceptible to various influences from the traditional financial world. Past Bitcoin halvings and subsequent bull markets have often coincided with significant macroeconomic turning points, such as interest rates on 10-year US Treasury bonds and the QE periods of the US Federal Reserve. This overlap suggests that factors other than BTC halving might also be significantly relevant in driving its price.

Bitcoin Halving 2024

The anticipation for the next Bitcoin Halving is palpable. Scheduled around April 2024, this event will see the block rewards for miners decrease to 3.125 Bitcoin. As of the end of 2021, Bitcoin’s price stood at approximately $55,000. However, global inflation concerns and international conflicts in 2022 led to economic downturns, causing the Bitcoin price to plummet to below $16,000. However, some investors anticipate another bull market in 2024 and 2025. The halving process is seen by many as an opportunity to profit, with the Buy-and-Hold strategy being the simplest approach.

An Overview on Future Bitcoin Halvings

Bitcoin Halving 2012: The First Halving!

The inaugural Bitcoin Halving took place on November 28, 2012. The rewards for miners were halved from 50 to 25 Bitcoin. At the time, the BTC price was $12.35. 150 days later, the price surged to $127. By December 2013, Bitcoin reached a peak of $1,038.

Bitcoin Halving 2016

The second halving occurred on July 9, 2016. The BTC price started at around $650. Within a year and a half, it skyrocketed to $19,700. However, the following year saw a decline to approximately $3,200. Despite the rapid price fluctuations, the price remained almost 400% higher than before the 2016 halving.

Bitcoin Halving 2020: The last Halving!

The most recent halving was on May 11, 2020. Leading up to this event, there were high expectations based on previous halvings. While the price did not immediately surge post-halving, the long-term trend remained consistent with previous halvings. By the end of 2021, BTC reached a record high of around $69,000.

Bitcoin Halving 2028: $1 Million in Sight?

The value of Bitcoin is influenced by various factors, including its scarcity, demand, adoption rate, regulatory environment, and macroeconomic factors. Predicting its future price involves considering these and other variables. According to the Stock-to-Flow (S2F) model, Bitcoin is projected to reach $1 million in the coming years. Looking ahead, the 5th Bitcoin Halving is expected in 2028, with the block reward reducing to 1.5625 BTC. With each halving, the rewards and economic incentives for miners decrease, potentially leading to a less secure network. However, historical evidence indicates that halving events do not trigger this response.

What Happens When There Are No More Bitcoins Left?

Bitcoin’s protocol ensures that only 21 million coins will ever be mined. As the block rewards continue to halve, the incentives for miners will diminish. By around 2140, all Bitcoins are expected to be mined. The security of the Bitcoin network will then rely on transaction fees rather than block rewards. The community has long debated how to address this impending scenario, with scaling solutions and higher transaction fees being discussed.

Conclusion

Bitcoin Halving stands as a testament to the cryptocurrency’s unique design, ensuring its scarcity and potential value. As we approach future halvings and bitcoins remain a 24-hours tradable asset, tools like CoinTracking become essential, offering a clear view on the portfolio performance and tax obligations. In essence, the Bitcoin Halving underscores the innovative blend of technology and economics that makes Bitcoin a continually fascinating subject in the financial world.