Bitcoin’s “halving” happens roughly every four years (Representational)
London:
Bitcoin, the world’s largest cryptocurrency, on Friday completed its “halving,” a phenomenon that happens roughly every four years, according to CoinGecko, a cryptocurrency data and analysis company.
Bitcoin was fairly stable immediately afterward, falling 0.47% to $63,747. The halving comes after Bitcoin hit an all-time high of $73,803.25 in March.
But what exactly is the halving, and does it really matter?
WHAT IS IT?
Bitcoin’s halving, which happens roughly every four years, is a change in Bitcoin’s underlying blockchain technology designed to reduce the rate at which new Bitcoins are created.
Bitcoin was designed from its inception by its pseudonymous creator Satoshi Nakamoto to have a capped supply of 21 million tokens.
Nakamoto wrote the halving into Bitcoin’s code and it works by reducing the rate at which new Bitcoins are released into circulation.
So far, about 19 million tokens have been released
HOW DOES BITCOIN’S HALVING HAPPEN?
Blockchain technology involves creating records of information – called ‘blocks’ – which are added to the chain in a process called ‘mining’.
Miners use computing power to solve complex mathematical puzzles to build the blockchain and earn rewards in the form of new Bitcoin.
The blockchain is designed so that a halving occurs every time 210,000 blocks are added to the chain, roughly every four years.
At the halving, the amount of Bitcoin available as rewards for miners is cut in half. This ma
kes mining less profitable and slows the production of new Bitcoins.
WHAT HAS HALVING GOT TO DO WITH BITCOIN’S PRICE?
Some Bitcoin enthusiasts say that Bitcoin’s scarcity gives it value.
The lower the supply of a commodity, all other things being equal, the price should rise when people try and buy more. Bitcoin is no different, they argue.
Others dispute the logic, noting that any impact would have already been factored in to the price.
The supply of Bitcoin to the market is also largely down to crypto miners but the sector is opaque, with data on inventories and supplies scarce. If miners sell their reserves, that could pressure prices lower.
Since hitting record highs last month, Bitcoin’s price has sunk below $64,000.
Establishing the reasons for a crypto rally is also hard, not least as there is far less transparency than in other markets.
he most common reason given for this year’s surge is the U.S. Securities and Exchange Commission’s January approval of Bitcoin ETFs, and expectations that central banks will cut interest rates.
But in the speculative world of crypto trading, explanations for price changes can snowball into market narratives that become self-fulfilling.
WHAT ABOUT PREVIOUS?
There’s no evidence to suggest that previous halvings have been behind Bitcoin’s subseque
nt price rises.
Still, traders and miners have studied past halvings to try and gain an edge.
When the last halving happened on May 11, 2020, the price rose around 12% in the following week and 659% in the following 12 months.
But there were many explanations for the rally – including loose monetary policy and stay-at-home retail investors with spare cash – and no real evidence the halving was behind it.
An earlier halving occurred in July 2016. Bitcoin rose around 1.3% in the following week, before plunging a few weeks later and then rallying.
In short: it’s hard to isolate the impact, if any, halvings may have had previously or predict what could happen this time around. sourced from
Business News India: Latest Business News Today, Share Market, Economy (businesstoday.in)
What Happens Next?
In the past, it
have led to new all-time highs for the bitcoin price in the months following the events.2 However, this time has been different, as the bitcoin price has already reached a new all-time in the months prior to the halving.
Much of the recent rally was driven by the spot bitcoin exchange-traded funds (ETF), perhaps an indication the demand created by that market may have a greater impact on bitcoin prices than halving events.
According to Kraken Head of Strategy Thomas Perfumo, there is a degree of additional symbolism associated with this halving in terms of the illustration of bitcoin’s apolitical, unwavering monetary policy at a time when many people around the world are having questions about their own currencies.
“At a time when you have people who are looking at their conventional currencies—inflation, interest rates, and the economic environment they live in—they see this alternative form of currency, bitcoin,” Perfumo told Bloomberg.3
However, analysts at JPMorgan and Deutsche Bank said that the impact this of halving was mostly baked into the current bitcoin prices and there isn’t likely to be a large upward movement in the price in its aftermath.
According to these reports, the near-term effects of the halving may be limited to the bitcoin mining sector, where consolidation could occur as overall hashrate declines due to decreased profitability.
That said, there are also indications that miners could have avenues for increased revenue even if the halving does not lead to a price boom. This increased revenue would come via increased aggregate fees from transactions spearheaded by recent developments such as Ordinals and layer-two networks.
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