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Bitcoin’s next halving is quickly approaching. But what is it, exactly?
Even those ignoring developments in the sector have likely come across the two-word phrase in a headline while scrolling to stories they would rather read — about Taylor Swift, football or these days, perhaps a combination of the two.
For most, it’s clear that the halving will impact the supply of bitcoin (BTC) and potentially its price.
But what exactly is the halving, why does it matter and why should you care? In this piece, Blockworks breaks down the ins and outs of the halving and what you should expect to see in the weeks ahead.
What is a bitcoin halving?
During a bitcoin halving, the rewards paid to BTC miners are cut in half.
Individuals or companies use computers to solve mathematical problems for a chance to process and validate transactions made on the bitcoin blockchain network.
Known as miners, these entities earn rewards when they successfully verify and add a block of transactions to the distributed ledger. These rewards come in the form of bitcoin, marking the method by which the asset is issued.
The reward for mining a block on the bitcoin network in 2009 — when Satoshi Nakamoto introduced the asset — was 50 BTC.
By design, those rewards are cut in half after every 210,000 blocks. Bitcoin’s total supply is set to be capped at 21 million BTC.
“The combination of a fixed total supply with a gradually decreasing inflation rate not only creates scarcity but also embeds a disinflationary feature into bitcoin,” Grayscale Investments researcher Michael Zhao wrote in a Feb. 9 report.
Have there been other halvings?
Yes. The first bitcoin halving happened in November 2012, at which point per-block rewards fell to 25 BTC.
The reward then dropped to 12.5 bitcoins during the July 2016 halving, and subsequently decreased to 6.25 BTC upon the last halving in May 2020.
When is the next bitcoin halving?
A bitcoin halving is not scheduled like a doctor’s appointment or PTO. Because it occurs every 210,000 blocks, it is not set for a specific day.
The day of the halving is thus estimated, and the next one is set to occur in mid-April. At that point, per-block rewards will drop to 3.125 BTC. As that time approaches, a more specific time and date will become apparent.
Read more: Bitcoin halving expected to hit on 4/20
But the date of the halving is perhaps less important than the potential market impact that such an event can spur — whether in its lead-up, afterward, or both.
Is it true that bitcoin’s price goes up around a halving event?
Historically, bitcoin halvings have seemed to catalyze crypto bull markets.
Given there have only been three bitcoin halvings, it is important to note there is a small sample size to go by. Still, Berenberg Capital Markets analysts noted in a 2023 report that bitcoin has seen post-halving price rallies that have lasted between one and two years.
Bitcoin jumped from $12 on Nov. 28, 2012 to a price nearly 100 times that — $1,164 — 367 days later.
It took 524 days after the 2016 halving to rise from about $650 to a then-record $19,712. Bitcoin hit its current all-time high of more than $69,000 in November 2021, 549 days after the 2020 bitcoin halving.
As mentioned, BTC supply is capped at 21 million bitcoins. And the slowing down of new issuance can create a “supply shock” if in fact demand for the asset is growing — a potential bullish scenario for bitcoin.
Read more: Bitcoin halvings are bull market things — Will this time be different?
Grayscale’s Zhao notes that while the slashing of per-block rewards highlights the scarcity narrative surrounding bitcoin, it is something the market knows about in advance.
Litecoin (LTC) has seen large run-ups in price precede the halving, followed by a reversal in price action after. This dynamic signals the supply shock for LTC is priced in.
Such occurrences suggest that other factors, aside from the halvings themselves, contribute to the post-halving bitcoin price rallies.
Zhao argued that the European debt crisis in 2012 highlighted bitcoin’s potential as an alternative store of value, for example. The initial coin offering boom in 2016 indirectly benefited bitcoin as well, while the 2020 pandemic resulted in stimulus measures that upped inflation fears, he added.
“These instances of macroeconomic uncertainty and the search for alternative investment options seem to align with periods of increased interest in bitcoin, coincidentally around the times of the halvings,” Zhao said. “This pattern suggests that while the halvings contribute to Bitcoin‘s scarcity narrative, the broader economic context and its impact on investor behavior can also critically impact bitcoin’s price.”
Will bitcoin prices go up with the next halving?
The answer to the above question depends on who you ask, as historical patterns do not necessarily foreshadow what will happen next.
Demand plays a large role in balancing any supply reduction in a commodity, analysts at fintech platform BitOoda noted in a report earlier this month.
“Unlike the previous halving, we are currently seeing institutional growth because of the recently-approved ETFs, which is bringing new sources of demand,” the BitOoda analysts added.
Crypto investment products saw record inflows last week, fueled by money going into the US spot bitcoin ETFs that launched last month. Many expect wealth managers controlling trillions of dollars in wealth to start making allocations to such funds in the coming months.
Read more: ‘Primary market’ for bitcoin ETFs largely hasn’t yet adopted such funds
Mikkel Morch, founder of the digital asset investment fund ARK36, said crypto’s evolving integration into traditional finance has spurred the segment’s increased maturity compared to previous cycles.
“With increased regulatory clarity and the adoption of cryptocurrencies by mainstream financial services, bitcoin’s response to the halving could provide new insights into its role in the global financial ecosystem,” Morch said. “We believe that the strong, bullish undertones are not unfounded also due to these reasons.”
What does the bitcoin halving mean for miners?
Miners have looked to boost efficiency and reduce costs ahead of the event, as the decline in rewards is expected to put financial stress on the sector.
After all, miners will essentially have their breakeven power price reduced by half.
Galaxy Digital analysts expect that up to 20% of network hash rate from eight mining machine models could go offline at the time of the next bitcoin halving.
Read more: 20% of bitcoin network hash rate could go offline after halving: Galaxy
The fact that bitcoin’s price rises after the halving have historically been initially slow has ramifications for miners, the BitOoda analysts noted.
“Any duration without a BTC price response will cause miners to stop operating some of their rigs,” they wrote.
Chase White, a senior analyst at Compass Point Research & Trading, told Blockworks that private miners without easy access to public markets capital are more likely to have to shutdown operations around the time of the halving.
“We think miners who have low or no debt, bottom quartile power costs and efficient mining fleets will be fine,” White added. “Though we certainly expect there to be pain for everyone, especially early on as miners on the margin of profitability try to wait each other out before shutting down.”