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What is Bitcoin Halving and How Does it Affect Crypto Prices?

What is Bitcoin Halving and How Does it Affect Crypto Prices?

A ‘halving’ is a 50% decrease in the rate of cash mining and the payout for mining. This deliberate delay in the supply of Bitcoin helps limit inflation by making the cryptocurrency scarcer.

After each ‘halving,’ the bitcoin price rose significantly for a few days before falling back to a more steady level. Every four years, it is halved.

As 2024 approaches, bear in mind that big events’ speculative enthusiasm typically coincides with a significant price rise.

Bitcoin Halving

A Bitcoin halving takes place whenever block rewards, or perhaps the amount of Bitcoins into circulation each time a block is generated (every 10 minutes on average), is halved. As a result, the rate at which new Bitcoins are created will be halved.

It happens regularly, every 210,000 blocks, as part of Bitcoin’s design to reduce the frequency with which the entire supply is released into the market over time. Bitcoin’s scarcity rises as a result of the supply impact, which has traditionally raised the price.

When Bitcoin initially began, miners were given 50 Bitcoins for each block they generated. The prize was halved in 2012 to 25 Bitcoins, and then again in 2016 to 12.5 Bitcoins, which would result in a half-decreased block reward of around US$8 million per day at present prices to 6.25 coins.

Events that reduce the block reward by half will keep occurring until it is zero. Once there are 21 million Bitcoins in circulation, the process will conclude in the year 2140.

What’s the Point?

The Bitcoin network’s functioning is dependent on the coin’s ability to maintain its monetary worth, which is supported by a delivery schedule that reduces quantities by half regularly.

Bitcoin’s inflation rate is projected to decrease to approximately 1.8% after the May 2020 halving, in line with gold’s inflation rate of 1.45%.

Bitcoin investors should pay attention to price halving events since they are expected to have a favorable impact on the price of Bitcoin, albeit not immediately.

There’s no way to know for sure, but the market rules dictate that if demand remains constant or increases, a price increase will follow.

History of Bitcoin Price Halving

After 210,000 blocks, Bitcoin’s network was halved in November 2012. Before the occasion, merchants across the globe had halved parties, with prices rising from under $4 to $13 by year’s end.

The second halving occurred in July 2016, although anticipation peaked a month earlier, causing some investors to sell out, and market observers were more cautious this time.

But by the end of the year, prices were close to $20,000, up from $1,000 in early 2017.

Prices have risen again in expectation of the third halving after falling to mid-$3,000 in early 2019.

Market participants anticipate the upcoming halving to add considerable value to Bitcoin, as it has in the past.

Inefficiencies in the Mining Process

A reduced incentive for mining bitcoin would decrease miners’ income by introducing new transactions to the network.

Due to the high energy cost needed to run the machines that resolve the mathematical puzzles, the bitcoin price would have to skyrocket to compensate miners.

Miners need to be as efficient as possible. Thus new equipment will be needed to produce more hashes/second while using less energy and lowering overheads.

Miners may also switch to mining comparable crypto assets like bitcoin cash and bitcoin SV.

With the same hashing method as bitcoin, these two coins are extremely simple to switch to.

After the Bull Run has Ended

The halving effect will have a beneficial impact on cryptos if it helps eliminate some of the obstacles that have made past bull runs unsustainable.

For example, the time required for blockchain to fully resolve transactions prevents bitcoin from being widely used as a payment method.

Regulators are also unsure. While significant progress has been made since 2017, there is currently no strong regulatory framework with worldwide recognition to legislate for crypto asset trading and settlement.

Without investors and their vast wallets, bitcoin is sparsely exchanged and therefore volatile.

Regulation, according to some, is the “turning point” for IFAs, financial advisors, and wealth management to discuss crypto with customers, which may encourage more investment and help solve other issues.

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