While the effect of Bitcoin beating the $44K mark still ripples across the crypto space, the coming months seem even brighter as there’s less than 20,000 blocks to the next Bitcoin halving.
How Significant Is Bitcoin Halving?
Every fours years, Bitcoin succumbs to a programming that reduces the rate at which it is mined by half. In any halving event, what happens is that the rate at which bitcoins are produced and made available on the blockchain is reduced by half, thus increasing the scarcity of the cryptocurrency.
The last halving event was in 2020, while the next is expected to happen in 2024. The goal is to get Bitcoin to the maximum supply of 21 million bitcoins by halving the mining rate and rewards every four years till the last bitcoin is mined in year 2140.
The principle is not far from the demand and supply interplay in economics. For conventional bitcoin holders, the best way to explain it is that it’s a three-legged event that affects bitcoin supply, miners, and then investors. What happens to the miners is that they get less compensation for their efforts, which in turn increases competition in their space – so not so much of a good news to them.
Investors, however, enjoy improved security as only the most reliable and efficient miners remain and thrive in operation. Still, early investors before halving events also enjoy increased value of the cryptocurrency – while the increase in value eludes late market entrants. This web of events and Bitcoin’s deflationary nature is what puts its halving on the spotlight and commands the excitement of the entire crypto community.
Historical Context and Impact
Preceding Bitcoin halving events will help give you an idea of how the occurrence has helped increase the coin’s market value. A halving event usually causes an appreciation in the price or market value of Bitcoin by garnering market sentiment and speculation, achieved by reducing the rate of Bitcoin issuance and evoking scarcity and demand. These series of events are then followed by investors anticipating price appreciation.
The last three halving events prove that the principle has worked really well and raised hopes on Bitcoin’s long-term value proposition. Back in November 2012, the first halving event happened when BTC was just $12. Fast forward to one year later, Bitcoin was almost $1,000. The second halving happened around July 2016 when BTC had dropped to $670, but appreciated to $2,550 in 2017 and later on saw a previous all-time-high of $19,700 in December of 2017.
Then followed the May 2020 halving, which occured when BTC was $8,787, but later in November that year, it achieved an all-time high of close to $69,000. While the events later led to significant value increase, one could obviously notice that they didn’t happen immediately beacuse it often takes weeks, months, or over a year for the reduction in circulating bitcoins to trigger investors and reflect in the market.
The dynamics of halving as seen consistently in the last 11 years give credence to the ability of the phenomenon to build anticipation of price increase. This in turn drives investor sentiment, followed by a post-halving price surge. The effect is then a lasting positive perception of Bitcoin and trust that the continuous reduction in supply will sustain it as the gold of cryptocurrencies.