- The fourth Bitcoin “halving” event is expected to take place this week.
- Previous halvings have propelled crypto higher by reducing the number of new tokens in circulation.
- Bitcoin hit an all-time high last month – and some analysts believe it could hit six figures soon.
It’s been a big year for Bitcoin.
In January, the Securities and Exchange Commission finally gave approval to 11 cash ETFs after months of speculation.
The following month, the token surged nearly 50%, then in March its price hit a new all-time high of over $69,000 for the first time since November 2021. (It has since given up some of those gains , but it is still up 50% since the start of the year.)
Next on the horizon is the fourth Bitcoin “halving” (or halving, if you prefer your crypto events to resemble Hollywood horror franchises), which is expected to take place this week.
What is halving?
New bitcoins are produced through a process known as “mining,” in which computers solve complex mathematical problems to validate and secure transactions on the cryptocurrency network.
In a halving event, the reward for mining new blocks is reduced by half. Halvings are expected to occur every 210,000 blocks – and it typically takes around four years to mine that amount.
The goal of the halving is to gradually reduce the rate at which new bitcoins are generated, ultimately capping the total supply at 21 million, as outlined in the cryptocurrency’s original white paper.
Over the lifetime of bitcoin, there have been three halvings:
- During the first halving, in November 2012, the reward for each mined block was reduced from 50 bitcoins to 25 bitcoins.
- In the second half, in July 2016, the reward dropped 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, where the reward will drop again to 3,125 bitcoins per block, to take place on April 19 or 20.
How will this affect the price of Bitcoin?
The halving is designed to maintain the scarcity of bitcoin – and simple market economics dictates that the price of an asset benefits from the decline in supply.
Previous halvings have been no exception to this rule, with bitcoin reaching new highs following each event. Last time, its price went from less than $9,000 to around $60,000 in less than a year.
Some on Wall Street are not convinced that the cryptocurrency will repeat this feat. JPMorgan warned last month that its price could fall as much as $42,000, or more than a third, this time due to higher production costs.
But perhaps the fact that the world’s largest bank by market value is paying attention to what was at one point a niche event in the crypto market is a sign of Bitcoin’s stock rising these days. last years.
“More ETFs are coming, which are increasingly institutionalizing the crypto asset class,” Deutsche Bank’s Jim Reid said last month in a research note.
“Other things to watch out for are the fourth bitcoin halving in April, where new coins available to miners are halved to maintain scarcity, as well as greater clarity on upcoming regulations.”
“Whether you are cynical or converted, whether you think it is cheap or in a bubble, what is clear is that bitcoin is becoming more and more institutionalized,” Reid added.
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