Bitcoin is expected to go through a “halving” in the next day or two, a pre-programmed event that could affect the production of the world's largest cryptocurrency.
A halving, which occurs roughly every four years, was designed by bitcoin's creator, Satoshi Nakamototo effectively halve the reward that digital token miners receive. The idea is that by halving the amount that bitcoin miners currently make for their efforts, fewer bitcoins will enter the market, creating more scarcity of the cryptocurrency.
This has led to some speculation that the halving could lead to increased demand and boost the price of bitcoin, which is already up nearly 50% since the start of the year. Much of the credit for bitcoin's recent rally goes to the early success of a new way to invest in the asset: locate bitcoin ETFs, which were only approved by US regulators in January.
Here's what you need to know about the bitcoin 'halving'.
What exactly is the bitcoin “halving”?
Bitcoin miners get a fixed reward when they successfully validate a new block on the Bitcoin blockchain. That reward is currently 6.25 bitcoins, worth about $402,000, based on the token's current trading price.
After the halving, miners will receive 3,125 bitcoins for achieving the same goal. As a result, the rate at which new bitcoins enter the market should also drop, slowing the coin supply. According to the limits set by Satoshi Nakamoto, only a maximum of 21 million bitcoins will exist, of which more than 19.5 million have already been mined, and less than 1.5 million remain to be created.
When was the last bitcoin halving?
The last such event took place in May 2020, when the price of bitcoin hovered around $8,602, according to CoinMarketCap.
By May 2021, the value of bitcoin had increased nearly sevenfold to nearly $57,000.
When will the next halving happen?
The halving is planned to occur regularly after every 210,000 “blocks” – where transactions are recorded – are created during the mining process, which are added to the blockchain.
Although there are no set calendar dates for this, it generally runs about once every four years. The latest estimates expect the next halving to occur late Friday or early Saturday.
What do experts say could happen to the price of bitcoin after the next halving?
Some believe that it will not be an event for the price of bitcoin because the cryptocurrency has already experienced a great acceleration this year.
“Investors, traders and speculators priced in half months ago,” Nigel Green, chief executive of financial services firm deVere Group, said in an email. “As a result, a significant portion of the positive economic impact was felt earlier, pushing prices to record highs last month.”
Still, others say bitcoin could take a hit, at least in the long term. Rising demand from the new ETFs, combined with the supply shock from the next halving, could help push bitcoin's price even higher, said Bitwise senior crypto research analyst Ryan Rasmussen .
“We expect the bitcoin price to perform well over the next 12 months,” he said. Rasmussen notes that he has seen some predict earnings as high as $400,000, but the “most consensus estimate” is closer to the $100,000 to $175,000 range.
What is the impact of the halving on bitcoin miners?
Miners are likely to come under pressure to become more energy efficient, or may need to raise new capital, experts said.
In its recent research report, Bitwise found that miners' total earnings declined one month after each of the previous three halves. But those numbers had rebounded significantly after a full year, thanks to spikes in bitcoin's price and larger miners expanding their operations.
Time will tell how mining companies fare after this upcoming halving. But Rasmussen is betting that the big players will continue to expand and use the industry's technological advances to make operations more efficient.
—With a report from the Associated Press.
