ANYONE even vaguely interested in cryptocurrencies must be aware that ‘the halving’ of Bitcoin is imminent. While it may sound like a relatively straightforward technical change, it gets a lot of Bitcoin enthusiasts very excited.
In essence, every 210,000 blocks the algorithm that controls the release of Bitcoin drops the reward for mining. It happens roughly every four years. Up to the 20th you would get 6.25 Bitcoin for solving a block. Thereafter, you will only get 3.125.
Four years from now it will drop to 1.5625, and so on every four years until the whole 21 million Bitcoin mandated have been used up. In case you can’t be bothered to work it out, there’s about another 120 years’ worth to mine.
That said, as of now there are about 19,675,493 Bitcoins in existence, so that leaves about 1,324,507 until the mine is empty.
What has typically happened before at previous halvings is the price of Bitcoin has risen strongly before, and when the halving happens the price continues to rise – admittedly in fits and starts. After about a year, the price starts to fall. It then falls a very long way, and we get what is usually described as the ‘crypto winter’.
Will it happen this way again? Who knows. Past performance is not necessarily an indicator of future returns, as they like to say in financial advice circles. But, so far, the scenario has played out as before. From a low of around $16,000 last year we are now in the region of $70,000 for Bitcoin.
The halving in theory – and practically – reduces the new Bitcoin available for sale. As any Economist will tell you, reduce the supply, increase the price until market equilibrium is reached once more. Rising prices increase the supply – in this case, some of the existing holders will likely opt to take money off the table.
It is worth bearing in mind that a lot has changed since the last halving, though. For one, this year we also have the addition of Bitcoin Spot ETFs to contend with.
Anecdotally, Cathy Wood’s Ark ETF has ‘lost’ very large numbers of Bitcoin, presumably because the holders of her ETF have cashed out as the price has risen. Her’s cannot be the only one that this has happened to, so the potential equilibrium is already being fed.
The halving feels like a fork in the road and it’s a juncture at which all the old questions about Bitcoin inevitably come up again.
Is Bitcoin digital gold? It could be. Is it a great store of value? Possibly. Or, are we only part of the way on our journey to the moon? Perhaps.
