Bitcoin Halving and Market Volatility

About every four years, or when 210,000 blocks have been created, Bitcoin‘s value is cut in half by the public. This has always been a part of Bitcoin and is used to control how many new bitcoins are made and keep their number limited. It costs half as much to check and add new blocks to the blockchain as it did before the cryptocurrency was halved. The rate of Bitcoin creation is directly affected by this. Half of the plan is to gradually reduce the supply of bitcoins until there are just twenty-one million remaining.

How Does It Work?

The process of splitting Bitcoin is broken down below:

1. First Halving(2009): When Bitcoin debuted in 2009, block miners received 50 bitcoins.
2. Second Halving(2012): After 210,000 blocks, the payout was halved to 25 bitcoins in November 2012.
3. A second incentive cut in half was made in July 2016 after 210,000 blocks. It was valued at 12.5 bitcoins.
4. Third Halving(2020): The last halving in May 2020 reduced the payout to 6.25 bitcoins for each block.
5. Future cuts: After that, the supply will be halved in half every four years until there are no bitcoins left, approximately 2140.

Splitting affects how quickly bitcoins circulate. People often believe this decline in the rate of issuance is why Bitcoin is so hard to receive, one of its key advantages. Bitcoin is deflationary because its fixed supply mimics gold’s finite supply. In the world of cryptocurrencies, people keep an eye on Bitcoin halves, which can affect the market. Others guess what Bitcoin will be worth in the years and months after it is halved. However, splitting events and price changes is complicated, and the market as a whole is affected by many things.

Is Bitcoin Halving a Good Thing?

Many believe Bitcoin halving is excellent for its market value and environment for several reasons. Some may not like it.

• Price Rises

The award was halved due to inflation concerns. What a specific amount of money can buy decreases with inflation. US inflation can be calculated by looking at a basket of goods. A 2% inflation rate is considered beneficial for an economy, however, central banks set it as a goal rather than a realistic amount. The incentive amount is halved to keep Bitcoin rare and prevent inflation. Bitcoin users must convert Bitcoin to a fiat currency to spend it in a market, therefore this “protection” against inflation doesn’t protect them. Market value gains may safeguard buyers from inflation, but they don’t aid cryptocurrencies‘ fundamental purpose—payment.

• Demand

Demand for new bitcoins rises when the supply is halved. Bitcoin‘s price frequently rises after half events. Buyers and speculators benefit from rising prices due to high demand.

• Investing

Investments were never Bitcoin‘s purpose. As a mechanism to pay, it was designed to eliminate regulators and third parties from negotiations. Buyers were interested when they spotted a profit opportunity. Investors rushed into the new asset area, driving demand that the Bitcoin creators may not have anticipated. A half indicates fewer coins will be minted, but if the event’s effects stay the same, investors’ stakes could rise. Since Bitcoin investors are aiming to make money, investing in it is favourable.

• Mining

People, groups, and companies that mine for profit are miners. Mining Bitcoin produced a lot of money despite its price fluctuations. If not, huge mining firms would fail. However, halving reduces mining benefits. The task is less profitable after each half, even if prices stay the same or drop. Running competing big mines requires a lot of money and energy. People must maintain buildings and tools. To stay in business, they must enhance their mining. LPDTQXK3 Marathon Digital Shares, one of the world’s largest mining businesses, added 16,930 Bitcoin and 231,000 Bitcoin miners in February 2024. As of May 2024, the company’s hash rate was 28.7 trillion hashes per second, 5% of the network’s. Production capacity and holdings may have increased due to the expectation of the April 2024 halving and the hashing power needed to be competitive while running its operation with cash. Smaller miners lose if the price drops. Even if prices rise, group miners may receive smaller payouts. While the payout is halved, Bitcoin‘s price is unlikely to double without a huge market event.

• Consumers

Consumers and other Bitcoin users may be affected by a 50% Bitcoin value reduction. Price adjustments will largely affect Bitcoin buyers, which may stay the same or fluctuate after the halving. Half affects Bitcoin senders as much as purchasers. How much their transactions are worth depends on Bitcoin‘s market value after the event.

Next Bitcoin Halving?

The block prize will drop to 1.625 BTC in 2028, which is when the next halving is likely to happen. The prize for the first Bitcoin block was 50 Bitcoin. Since 2009, there have been four halves. The dates of the halves were:

• November 28, 2012, to 25 bitcoins
• July 9, 2016, to 12.5% of bitcoins
• May 11, 2020, to 6.25 bitcoins
• April 20, 2024, to 3.125 bitcoins

In May 2024, 19.7 million bitcoins were exchanged, leaving 1.3 million for mining rewards.

Should You Buy Bitcoin During Halving?

Many investors expect halvings because prices normally rise following them. Bitcoin may not follow prior trends, which took months or years to reach the next half. Whether you buy Bitcoin before, during, or after a halving depends on the market, your view, and your risk tolerance. The SEC permitted Spot Bitcoin ETFs a few months before the most recent halving, making it unusual. Many investors and traders bought these new ETFs or switched from the once-popular Bitcoin ETF Trusts. Another market adjustment a month after the half-lowered prices. Beginning in May, a lot of money left ETFs and then returned around the same amount. While Bitcoin‘s price skyrocketed in mid-May, the market became more positive about the Ether ETF. 3. As Bitcoin prices surpass $68,000, Bitcoin ETFs are seeing increased investment compared to previous months. For now, one can only speculate what the market will do.