Bitcoin’s halving has arrived. Here is what you need to know

Bitcoin’s most recent “halving” took place on Friday night, resulting in a 50% reduction in the rewards for miners. This decrease in new production has caused the price of the world’s largest cryptocurrency to remain stable at around $63,907.

The focus now shifts to the future implications of this event. While the long-term price of bitcoin is influenced by various market conditions, experts are also considering how this halving will affect the daily operations of miners. However, predicting the future in the unpredictable world of cryptocurrencies is a challenging task. Here’s what you should keep in mind.

WHAT IS BITCOIN HALVING AND WHY IS IT SIGNIFICANT?

Bitcoin “halving” is a programmed event that occurs approximately every four years and affects the production of bitcoin. Miners utilize specialized computers to solve complex mathematical puzzles, and upon completion, they receive a set number of bitcoins as a reward.

As the name suggests, halving cuts this fixed reward in half. Consequently, the reduction in mining rewards leads to a decrease in the number of new bitcoins entering the market. This slower growth in the supply of coins available to meet demand is a fundamental characteristic of bitcoin.

Bitcoin has a limited supply, with only 21 million bitcoins set to ever exist. Over 19.5 million bitcoins have already been mined, leaving less than 1.5 million remaining. If demand remains constant or increases faster than supply, the halving should drive up bitcoin prices by restricting output. While some argue that bitcoin can act as a hedge against inflation, experts caution that future gains are never certain.

HOW OFTERN DOES HALVING OCCUR

How frequently does halving occur in the Bitcoin network? According to the code of Bitcoin, halving takes place after the creation of every 210,000 blocks during the mining process. While there are no fixed calendar dates, this roughly translates to happening once every four years.

Will the halving have an impact on Bitcoin’s price? It is uncertain and only time will reveal the answer. In the past, after each of the three previous halvings, the price of Bitcoin experienced mixed results in the initial months but ultimately ended up significantly higher after one year. However, it is important to note that past performance does not guarantee future outcomes, as investors are well aware.

Adam Morgan McCarthy, a research analyst at Kaiko, emphasizes that it is too early to determine the significance of halving based on the limited sample size of three previous occurrences. It is not possible to definitively state that Bitcoin’s price will increase by 500% or any specific amount.

For instance, during the last halving in May 2020, Bitcoin’s price was approximately $8,602, according to CoinMarketCap. Over the following year, it surged nearly seven-fold to nearly $56,705 by May 2021. Similarly, Bitcoin’s price almost quadrupled a year after the July 2016 halving and skyrocketed by almost 80 times one year after the first halving in November 2012. However, McCarthy and other experts highlight that these returns were influenced by other bullish market conditions.

This current halving occurs after a year of significant price increases for Bitcoin. As of Friday night, Bitcoin’s price was $63,907 per CoinMarketCap. Although it has decreased from the all-time high of around $73,750 reached last month, it is still double the price of the asset from a year ago.

The recent surge in bitcoin’s value is largely attributed to the success of spot bitcoin ETFs, which were approved by U.S. regulators in January. According to a research report by Bitwise, these exchange-traded funds saw a significant inflow of $12.1 billion in the first quarter. Ryan Rasmussen, a senior crypto research analyst at Bitwise, believes that the growing demand for ETFs, combined with the upcoming halving event, could further boost bitcoin’s price. He anticipates a strong performance for bitcoin in the next 12 months, with some predictions even suggesting gains of up to $400,000.

However, the consensus estimate falls within the range of $100,000 to $175,000. Despite these optimistic views, some experts urge caution, suggesting that the potential gains may have already been realized. JPMorgan analysts, in a research note, stated that they do not anticipate post-halving price increases as they believe the event has already been factored into the market. They also highlight that the market is currently in overbought conditions based on their analysis of bitcoin futures.

WHAT ABOUT MINERS?

Miners will face the challenge of compensating for the decrease in rewards while also striving to reduce operating costs. According to Andrew W. Balthazor, a Miami-based attorney specializing in digital assets, even a slight increase in the price of bitcoin can have a significant impact on a miner’s ability to cover expenses. It is crucial for miners to plan for extreme volatility and not solely rely on the assumption that bitcoin prices will continuously rise.

Miners who have prepared well in advance may have taken steps to increase energy efficiency or secure additional funding. However, less-efficient and struggling firms may encounter difficulties.

One possible outcome is consolidation, which has become more prevalent in the bitcoin mining industry, especially after a major cryptocurrency crash in 2022.

According to a recent research report by Bitwise, total miner revenue declined in the month following each of the previous three halvings. However, these figures experienced a significant rebound after a year, thanks to the surge in bitcoin prices and larger miners expanding their operations.

Only time will reveal how mining companies will fare after this latest halving. However, Rasmussen believes that major players will continue to expand and leverage technological advancements in the industry to enhance operational efficiency.

WHAT ABOUT THE ENVIRONMENT?

The exact data regarding the environmental effects directly linked to bitcoin halving remains uncertain. However, it is widely known that cryptocurrency mining consumes a significant amount of energy, and operations relying on polluting energy sources have raised concerns over time.

A recent study conducted by the United Nations University and published in Earth’s Future journal revealed that the carbon footprint of bitcoin mining between 2020 and 2021 in 76 countries was equivalent to the emissions produced by burning 84 billion pounds of coal or operating 190 natural gas-fired power plants. Coal accounted for the majority of bitcoin’s electricity requirements (45%), followed by natural gas (21%) and hydropower (16%).

The environmental consequences of bitcoin mining primarily depend on the energy sources used. Industry experts have observed an increasing trend towards the adoption of cleaner energy sources in recent years, aligning with the growing demand for climate protection measures from regulators worldwide.

Due to production pressures, some miners may seek to reduce costs. Prior to the latest halving, JPMorgan warned that certain bitcoin mining companies might explore opportunities in regions with low energy costs, even if it means deploying less efficient mining rigs. SOURCE: Associated Press. By WYATTE GRANTHAM-PHILIPS Grantham-Philips is a business reporter who covers trending news for The Associated Press. She is based in New York.