The Year Of The Fourth Bitcoin Halving

What it means and how the Bitcoin halving could affect the crypto markets.

By: Pedro Solimano Loading...

The Year Of The Fourth Bitcoin Halving

Roughly every four years, or 210,000 blocks to be exact, the Bitcoin network lives through one of its most important events – the halving.

With the next halving expected to take place sometime in April 2024, the crypto community has been hyping up the occasion.

But what is the halving, and why is it important?

Bitcoin’s monetary policy

It’s set in Bitcoin’s code that there will only ever be 21M bitcoin. New coins enter circulation through a process known as mining.

Miners – entities that deploy specialized computers known as ASICs – participate in a worldwide competition to find a number. On average, every ten minutes, that number is found, and a miner is rewarded with newly minted bitcoin.

At the moment, the reward that a miner receives for producing a block is 6.25 BTC. In April, that number is set to be cut in half, and miners will then receive 3.125 BTC for every block issued.

This process will repeat until the year 2140 when the last satoshi (the smallest denomination of Bitcoin) is expected to be mined.

Halvings, which ultimately mean the asset becomes less inflationary every four years, tend to precipitate a cascade of effects in the Bitcoin market – affecting everyone from miners to speculators.

Miners prepare

“Bitcoin miners are betting that mining will continue to be profitable,” said Dan Roberts, CEO of Iris Energy, a large-scale Bitcoin miner that has been expanding over the past year.

He noted to The Defiant that firms are lowering their debt burdens, limiting cash expenditures, and securing their balance sheets – all in anticipation of the upcoming halving.

Roberts also said that scale is important and that if a mining firm isn’t growing into and beyond the halving event, it could see its doors shuttered.

That’s a common feature of a halving.

The block reward gets chopped in half, and miners who don’t have the facilities to withstand the drop in revenue – perhaps paying higher prices for electricity than competitors – are likely to shut down operations.

Bitcoin tends to rise during halving years

According to Ecoinometrics, a daily macro chart project, Bitcoin usually witnesses significant upside during its halving years. The project points out, however, that with only three such events under the network’s belt, the data isn’t definitive.

In some cases, the price does suffer after block rewards get reduced in half, only to resume its upward trajectory in the 12-18 months afterward.

BTC performance in halving years

The current Bitcoin halving cycle is performing below expectations, wrote Ecoinometrics. This is due to several factors, including the Terra and FTX implosions that took place in late 2022.

The recent approval of spot Bitcoin ETFs in the U.S. could fuel a renewed push higher for the world’s most valuable cryptocurrency. Traders piled into the new instrument, which saw record daily trading volumes upon launching yesterday.

The Bitcoin halving has always precipitated speculation among investors and traders, as the scarcity element built into the network’s monetary policy comes to the forefront.

Whether it will trigger another bull run is anybody’s guess. However, many are betting on the idea that history doesn’t repeat, but it does rhyme.