Bitcoin, the pioneering cryptocurrency, undergoes a pivotal event approximately every four years known as “Bitcoin halving.” This event notably impacts the operations of Bitcoin’s blockchain technology and the rate of new bitcoins entering circulation.
But what exactly is halving, and why is it significant for both seasoned investors and newcomers? Everest Trust experts present a comprehensive guide to understanding Bitcoin halving, a key event in the world of cryptocurrencies.
What is Bitcoin Halving?
Embedded in Bitcoin’s blockchain protocol, halving is a mechanism designed to cut the mining reward by half every 210,000 blocks. Initially, when Bitcoin was created by Satoshi Nakamoto, miners received 50 bitcoins per block. This reward has decreased through successive halvings: to 25 bitcoins in 2012, to 12.5 in 2016, and most recently, to 6.25 bitcoins per block as of the latest halving in 2020.
The ultimate aim of Bitcoin halving is to preserve Bitcoin’s value. It ensures that the supply of new bitcoins slows down as it approaches the total cap of 21 million coins. Halving is intended to prevent the devaluation of Bitcoin over time, potentially increasing its long-term value due to its scarcity.
How Does Bitcoin Halving Work?
Bitcoin miners employ powerful computers to solve complex mathematical problems that add new blocks to the blockchain. During a halving, the reward for adding new blocks is halved, diminishing the influx of new bitcoins into the market. This not only affects miners’ profitability but also reduces the rate at which new bitcoins are generated and circulated.
Halving And Its Impact on Bitcoin’s Price
The anticipation and aftermath of halving events have historically influenced Bitcoin’s price, with varying results.
Before the halving in May 2020, Bitcoin’s price hovered around $8,000. Following the event, it experienced a surge, ultimately reaching a peak near $64,000 in April 2021—an increase of approximately 800% from the pre-halving price.
A similar pattern occurred with the July 2016 halving. Post-halving, BTC price initially rose by 1.3%, only to experience a sharp decline in the ensuing weeks. However, it experienced a significant rally over the next several months, peaking at nearly $20,000 by December 2017.
While it is tempting to attribute these price increases directly to halving, it is essential to recognize that other factors also play an important role, such as market dynamics, investor sentiment, global economic conditions, and regulatory changes.
For example, the 2020 price increase coincided with a growing interest in cryptocurrencies from institutional investors and an overall boom in the digital asset market.
Note that Everest Trust is a prominent platform where users can engage with Bitcoin through contracts for differences (CFDs). This tool allows participants to potentially benefit from both the upward and downward price movements of Bitcoin, providing the necessary flexibility.
Bottom Line
Bitcoin’s halving is a fascinating event that underscores the unique economic model of this cryptocurrency. It not only underscores the designed scarcity of Bitcoin but also highlights the potential for long-term value appreciation. As always, thorough research and consideration are recommended before making any investment decisions.
