Bitcoin Halving Things you need to be aware of

Bitcoin operates on a blockchain, and each block on this blockchain stores 1 MB worth of Bitcoin transaction records. “Miners” who verify these transactions by solving a complex mathematical problem adds these blocks. This produces a 64-character “hash”, which confirms the completion of the task and locking of the block. And miners accordingly earn Bitcoins by adding blocks of information on the Blockchain. This is an incentivisation mechanism so that people would continue to confirm transactions and add more Bitcoin into circulation.

After the mining of every 210,000 blocks, the pace of creation of new BTC cuts in half. The first Bitcoin halving date was in 2012 when the mining reward slashed down to 25 BTC. The next Bitcoin halving date came in 2016 with 12.5 BTC as the mining reward, and the most recent in May 2020, when Bitcoin Halving slashed the mining reward to 6.25 BTC.

Blocks and Bitcoin mining

The backbone technology of Bitcoin and most cryptocurrencies is Blockchain. It consists of a host of computers and systems known as nodes. These nodes run the Bitcoin software and contain its history of transactions. They also perform a plethora of checks to ensure that a transaction is valid. Only upon the successful conduction of these checks can the transaction complete.

Blockchain assigns encrypted addresses to each party in the network. Hence the record of transactions is visible to everyone on the Bitcoin network. Although, it is difficult to track down the transacting parties in the network. Therefore, the Blockchain acts as a pseudonymous record of transactions.

Bitcoin halving is a process that involves synthetic inflation methodologies that halves the release rate of new Bitcoin. Bitcoin miners mine roughly every four years, about 210,000 blocks. However, a reduction of 50% occurs in the reward they receive for each block after achieving this number goal. Correspondingly, this practice leads to the intended 50% reduction in the rate of new Bitcoin entering the market for circulation.

There are cases when the halving doesn’t immediately cause the expected rise in Bitcoin’s price and thereby causing discouragement among Bitcoin miners. A usual prevention tactic to provide enough incentive to Bitcoin miners is a significant reduction in the complexity of the Bitcoin mining process. The difficulty of successfully mined transactions is decreased while not altering the block mining reward to act as an appropriate substitution for high Bitcoin values.

But remember that the market always ends up self-correcting, and most of the time, it’s a patience game. However, you can exploit these fluctuations in the Bitcoin rates by trading Bitcoin CFDs with us at CAPEX.

Why does it occur?

Limited supply creates more demand. Bitcoin halving works on this principle to increase the value of Bitcoins in the market. A threshold of 21 million Bitcoin is set beyond which the supply is dipped by 50%. The process of mining transactions is elongated, and so is the circulation process of a fresh block of Bitcoin in the market. The scarcity of Bitcoin per block ensures a higher demand for Bitcoin, leading to a significant jump in its price.

The rise in price helps counterbalance the halving of mining rewards and keeps the Bitcoin miners incentives in check. The more protracted mining process pays more in the form of a higher commission fee, which is enough to encourage the corresponding miners. Therefore, Bitcoin halving date has a simple goal of increasing demand and, accordingly, the value.

The half-cut on reward for each block of bitcoin mined leads to a delay in the mining process. The rate of the issue of new bitcoin halves, significantly reducing the circulation of new bitcoin. This deceleration generally leads to a jump in bitcoin price. The surge in price helps incentivise the miners for further mining activities by making up for the losses due to block reward halving. This helps to mitigate Crypto Inflation, which manages to work in favour of the bitcoin miners. Therefore, the elongation of the mining process and fresh circulation process is usually a time of growth among miners.

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Implications Of Bitcoin halving

The implications of Bitcoin halving are displayed in the rising Bitcoin prices. Lowering the supply of new Bitcoin for circulation is directly correlated to increased demand by investors. Several commodities, such as gold and precious gems, have high costs, majorly owing to their rarity rather than their shiny appearance. Bitcoin halving intends to create this artificial rarity in the market once a capping supply for 21 million Bitcoin is reached.

Recent examples

A recent case study presented by the actions of Tesla CEO Elon Musk displays the importance of cryptocurrency usage in modulating its prices. Musk announced on May 12th 2021, that Tesla would not consider Bitcoin as a form of payment any longer, which caused significant Bitcoin price alterations. The following week also saw the Bitcoin price drop below $40,000. We can attribute this to Chinese regulators’ sudden restrictions, banning cryptocurrency transactions by financial markets and payment institutions. These two incidents appear to undertake blame for the fall in Bitcoin price solely. However, investors observed that the drop in Bitcoin value could potentially be a significant consequence of Bitcoin halving instead.

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Bitcoin halvings have previously been observed to cause a significant rise in Bitcoin prices. On November 28th 2012, the date of the first halving, Bitcoin prices shot up to $1,207 from $12. We can see a similar surge after the second halving on July 9th 2016. The price experienced a significant boost, from $647 in July 2016 to $19,345 on December 15th 2017. These seemingly separate incidents displayed a considerable correlation between halvings and Bitcoin pricing.

From December 2017 onwards, a dip in the price was observed. The price experienced a fall of $16,090 throughout the year, finally settling to $3,255 on December 15th 2018. However, regardless of the drop, this price was still significantly higher than the price before the second halving, mathematically by a factor of approximately 403%.

The latest Bitcoin halving date

The last halving observed on May 11th 2020, provided the largest observed boost to the Bitcoin prices. The prices surged to $63,558 on April 12th 2021, from $8,821 on the BTC halving date. This clear jump of 651% proves noteworthy enough to gauge the contribution of Bitcoin halving. The price went down to $49,504 by May 11th 2021, which indicates a solid 461% settlement compared to the pre-halving price a month after the peak. This factor seems to echo the results displayed by the Bitcoin halving in 2016. So, before the next Bitcoin halving date, join us at CAPEX and kickstart your trading career.

The next Bitcoin halving date

It is necessary to note that the initiation of Bitcoin halving is based on the threshold instead of a fixed period. After 210,000 blocks of new Bitcoin have been mined, the Bitcoin halving process is set into motion. Therefore, the halving process strictly intends to control the supply of new Bitcoin in the market. The next Bitcoin halving will potentially occur in 2024, as the new blocks of Bitcoin are expected to reach a whopping 840,000 by that year.

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