- The next Bitcoin “halving” event is scheduled to take place in April.
- Previous halvings have increased the value of cryptocurrencies by reducing the number of new tokens in circulation.
- Bitcoin hit new highs this week, and some analysts believe it could reach six digits soon.
This year has been a big year for Bitcoin.
After months of speculation, the Securities and Exchange Commission finally approved 11 spot ETFs in January.
The following month, in February, the token soared nearly 50%, and on Tuesday, its price hit a new record high of over $69,000 for the first time since November 2021.
Next on the horizon is the fourth Bitcoin “halving” (or halving, if you like your crypto events to sound like a Hollywood horror series) scheduled to take place next month.
What is halving?
New Bitcoins are generated through a process known as “mining.” In this process, computers solve complex mathematical problems to verify and secure transactions on a network of cryptocurrencies.
In a halving event, the reward for mining a new block is reduced by half. Halving is scheduled to occur every 210,000 blocks, and it typically takes about four years to mine that amount.
As stated in the cryptocurrency's original whitepaper, the purpose of the halving is to gradually reduce the rate of new Bitcoin creation, ultimately capping the total supply at 21 million.
There have been three halvings so far in Bitcoin's lifetime.
- During the first halving in November 2012, the reward for each block mined decreased from 50 Bitcoins to 25 Bitcoins.
- During the second halving, in July 2016, the reward decreased again to 12.5 Bitcoins.
- In May 2020, the reward was halved again, this time to 6.25 Bitcoins per block.
Analysts expect the next halving event to occur in April, with the reward once again dropping to 3.125 Bitcoins per block.
How will it affect the price of Bitcoin?
The halving is designed to maintain Bitcoin's scarcity, and simple market economics suggests that the asset's price will benefit from reduced supply.
Previous halvings have been no exception, with Bitcoin hitting new all-time highs in the aftermath of each event. At its last announcement, its price skyrocketed from less than $9,000 to about $60,000 in less than a year.
Some on Wall Street are less confident that cryptocurrencies will repeat that feat. JPMorgan warned last week that rising production costs could cause prices to fall by more than a third to $42,000 this time around.
But the fact that perhaps the world's largest bank by market capitalization is paying close attention to events in the once-niche crypto market may be an indication of how high Bitcoin's stock price has risen in recent years.
“More ETFs are coming and the crypto asset class is becoming more institutionalized,” Deutsche Bank's Jim Reid said in a research note Thursday.
“Other highlights are the fourth Bitcoin halving in April, when new coins will be halved to miners to maintain scarcity, and further regulatory clarity.”
“Whether you're a cynic or a convert, whether you think Bitcoin is cheap or in a bubble, one thing is clear: Bitcoin is becoming increasingly institutionalized.” Mr. Reed added.
