What is Bitcoin Halving? What It Means for Crypto Investors?

Bitcoin halving refers to a pivotal event that occurs approximately every four years, reducing the block reward by 50%. This decreases the number of bitcoins entering the market, thereby increasing scarcity, which, under consistent market conditions, can drive up its value.

Block rewards are a part of the blockchain’s automated transaction validation and new block creation process, known as mining. Miners—participants in a race to solve complex cryptographic puzzles—are awarded new bitcoins if they are the first to solve the puzzle.

The successfully mined block is added to the blockchain, the miner receives a reward, and the network initiates another round. All miners verify the data in the newly added block while striving to solve the puzzle for the next block, hoping to secure the ever-decreasing reward.

• Bitcoin halving occurs roughly every four years, halving the reward for mining.
• Halvings reduce the rate at which new bitcoins are created, thus diminishing the available supply.
• Bitcoin last halved on April 19, 2024, lowering the block reward to 3.125 BTC.
• The final halving is anticipated around 2140 when the total number of bitcoins will reach its maximum supply of 21 million.

There are multiple reasons why Bitcoin halvings are seen as beneficial for the cryptocurrency’s ecosystem and market value, though for some, it might not be as favorable.

One of the primary objectives behind halving is to address concerns about inflation. Inflation reduces the purchasing power of a given amount of currency. In the U.S., inflation is measured by how much it costs to buy a fixed basket of goods. While a 2% inflation rate is often targeted as healthy for the economy, this figure is usually a goal set by central banks, not necessarily a predictable outcome.

Bitcoin halving aims to mitigate inflationary pressures on Bitcoin by limiting the reward and maintaining scarcity. However, this protection does not shield users from the inflationary effects of the fiat currencies they must convert Bitcoin into for use in traditional economies.

While increases in market value might protect investors from inflation, Bitcoin’s utility as a payment method is not similarly insulated.

As halving limits the number of new bitcoins introduced, demand typically rises. Historically, Bitcoin’s price has increased after previous halvings, reflecting this heightened demand, which is good news for investors and speculators.

Bitcoin was originally intended as a decentralized payment method, free from the need for regulatory oversight or third-party involvement in transactions.

However, it caught the attention of investors who saw potential financial gains. Their interest created additional demand that Bitcoin’s creators might not have anticipated. For investors, a halving signals a reduction in the supply of new coins but also the possibility of a rise in investment value if previous patterns hold. However, this turns Bitcoin investment into a speculative endeavor, as gains are not guaranteed.

Miners—whether individuals, groups, or businesses—have been drawn to Bitcoin mining for its profitability. Even as Bitcoin’s price fluctuated, it remained lucrative enough for large mining operations to continue.

However, halving reduces mining rewards, making it less profitable unless Bitcoin’s price rises significantly. Large mining operations require substantial investment in infrastructure and energy, along with continuous maintenance and capacity upgrades.

For example, Marathon Digital Holdings, one of the largest mining firms, boosted its Bitcoin holdings to 16,930 and expanded its fleet of miners to 231,000 in February 2024, bringing its hash rate to 28.7 trillion hashes per second—about 5% of the total network as of May 2024. This expansion was likely motivated by the anticipated April 2024 halving, as they needed more hashing power to remain competitive while ensuring the liquidity required to fund operations.

Smaller miners may struggle with reduced rewards, as the halving cuts the reward while Bitcoin’s price might not rise in parallel unless a significant market event occurs.

Retail Bitcoin users may feel the effects of halving in the value of their holdings. Those purchasing Bitcoin for transactions will primarily experience fluctuations in price, which may or may not mirror the trends preceding the halving.

For users sending remittances, halving affects them in the same way as buyers—the value of their transfers depends on Bitcoin’s market price post-halving.

The next halving is anticipated in 2028, reducing the block reward to 1.625 BTC. Bitcoin’s initial block reward was 50 BTC. There have been four halvings since 2009:

• November 28, 2012 – 25 BTC
• July 9, 2016 – 12.5 BTC
• May 11, 2020 – 6.25 BTC
• April 19, 2024 – 3.125 BTC

As of May 2024, around 19.7 million bitcoins were in circulation, leaving roughly 1.3 million to be released through mining.

Many investors are optimistic about halvings since past events have generally led to upward price trends. However, these price changes have historically been gradual, occurring over months or years, and there’s no guarantee that Bitcoin will follow the same trajectory.

Investment decisions around halvings depend on current market conditions, individual outlook, and risk tolerance. The April 2024 halving was unique as it coincided with the approval of Spot Bitcoin ETFs by the U.S. SEC. Investors quickly pivoted to these ETFs, abandoning older Bitcoin ETF Trusts.

However, prices dropped a month later, followed by significant capital outflows from ETFs in early May, only for inflows to rebound as market optimism shifted towards Ether ETFs while Bitcoin’s price rose in mid-May. For now, predicting Bitcoin’s future trajectory remains speculative.

In conclusion, Bitcoin halving halves the rate at which new bitcoins are introduced into circulation. This reward mechanism will continue until around 2140 when Bitcoin’s total supply is expected to reach 21 million. Bitcoin halving carries significant implications for its ecosystem. For miners, halving may lead to industry consolidation as smaller players exit or are absorbed by larger ones.

What is Bitcoin Halving?

Bitcoin halving is an event that occurs approximately every four years, cutting the reward for mining new blocks by 50%. This process reduces the rate at which new bitcoins enter circulation and is designed to increase scarcity over time.

When is the Next Bitcoin Halving?

The next Bitcoin halving is expected to occur around April 2028. During this event, the block reward for miners will be reduced from 3.125 BTC to 1.5625 BTC

When Was the Last Bitcoin Halving?

The last Bitcoin halving occurred on April 19, 2024. During this event, the block reward for miners was reduced from 6.25 BTC to 3.125 BTC.

What Happens When Bitcoin is Halving?

Bitcoin halving refers to the reduction in the number of tokens awarded to miners—essentially halving their reward. This scarcity effect is intended to increase demand by simulating diminishing returns.

How Does Halving Affect Bitcoin Miners?

After each halving, miners receive fewer bitcoins as rewards for validating transactions. This reduction can make mining less profitable, especially for smaller miners. Larger operations often invest in more efficient hardware to remain competitive.

What Will Happen After All 21 Million Bitcoins Are Mined?

Once the last bitcoin is mined, miners will no longer receive new bitcoins as rewards. Instead, they will earn transaction fees as their incentive to maintain and secure the network.