How this halving will affect Bitcoin

The cryptocurrency industry is not immune to price fluctuations and technological advances, and the years beyond 2022 will show that. While the Spot Bitcoin ETF may have garnered the majority of attention and investment, it is just one example of how quickly this sector has evolved and matured, and how other crypto assets can achieve similar results. It also provides templates for. At the same time, technological improvements continue to occur in rapid succession, apart from price speculation, which continues to attract investors' attention.

Such technical improvements include, but are not limited to:Ethereum
Ethereum
Blockchain and the community will continue to drive operational improvements, reduce costs, and enable increased development over time. In particular, the lower gas prices with the Dencun upgrade will allow smart contracts to expand even faster than expected. As a result, blockchain-based organizations such as DAOs will continue to benefit, as well as the potential for enterprise adoption. At the same time, stablecoins have reached market cap levels not seen since 2021, and NFTs continue to make a comeback after their devastating collapse during the last bull market.

But one technological upgrade stands out from the rest in terms of the speculation and impact it can have. Bitcoin halving. Let's take a look at what investors should keep in mind as this event approaches.

Impact on miners and investors

Since the Bitcoin halving reduces the number of Bitcoins that are rewarded to miners by 50%, it is natural that analysis and market focus will be on the impact of this event on the price per Bitcoin. Predicting price movements is difficult, especially for an asset class as nascent and fast-moving as the crypto sector, but investors have evidence that could help. In each of the past three halving events, including the halving event that occurred during the most recent bull market in 2020-2021, the price at the end of the year when the halving occurred was higher than the price at the time the halving occurred. Ta. .

While the impact of the halving on investors seems relatively easy to understand, especially with billions expected to flow into Bitcoin ETFs, the impact on miners also needs to be considered. With fewer Bitcoins available for rewards, miners will increase their capital investment to increase their chances of earning these rewards, which could lead to increased centralization in the field. When combined with existing political pressure on the industry, there may be unintended consequences.

Energy consumption and demand

As a result of the halving, it could lead to increased investment and consolidation among Bitcoin miners, as well as further political scrutiny of operators in this space. The reality is that the U.S. Bitcoin mining industry is bracing for more scrutiny in the future, given that multiple public hearings have been held regarding power usage by miners and a punitive 30% tax is still being raised. There is a need. Even though US investors (both individuals and institutions) have expressed clear demand and appetite for Bitcoin, especially from an investment and analysis perspective, policymakers have reflected this enthusiasm for the mining industry. It should be noted that this is not the case. Investing in miners has proven to be a volatile transaction where the price of a cryptocurrency cannot always be tracked on a one-to-one basis, and this dynamic becomes even more complex as consolidation and declining returns emerge. It will be.

One thing to keep in mind is that even on a geopolitical scale (see El Salvador), as Bitcoin establishes its role in the investment landscape, the development and maintenance of a competitive mining industry is It is very likely that it will become part of the policy. discussion.

Impact on other virtual currencies

Even as the cryptocurrency market continues to grow, expand, and mature, Bitcoin remains a dominant force. Whether measured by price per token, market capitalization, social media mentions, investment products, or invested capital, Bitcoin remains the undisputed leader of the crypto market. Significant changes surrounding Bitcoin always have an impact on sentiment and capital flows for other crypto assets, and this halving event is no exception. For example, the approval of the Spot Bitcoin ETF started a bull market for Bitcoin and almost every other crypto asset. Halving will almost certainly impact the crypto sector both directly and indirectly, so investors are advised to monitor its impact both in the short and long term.

The halving is just around the corner, and crypto investors should prepare for the short- and long-term implications of this event.