Bitcoin is the world’s largest and most widely used cryptocurrency. This digital currency is hosted on a blockchain network and the price is determined by the forces of demand and supply. Two decades ago, the only kind of money that was spent was the fiat currency and after the economic crash in 2008, people began to look for alternative means of storing value.
Bitcoin became the solution. However, some important aspects of this digital currency remain unclear. For example, where exactly does bitcoin come from? Who regulates the production of bitcoin? Can it ever be used as a means of legal tender?
Even though the Bitcoin whitepaper published in 2009 gives insight into these questions, the average person might not fully grasp the concept. In this article, we want to explain an important part of the bitcoin structure. We will take a closer look at bitcoin halving and how it affects the price of the cryptocurrency.
What is bitcoin mining?
Before we take a look at bitcoin halving, we need to first understand bitcoin mining. Bitcoin runs on a proof of work system. When miners have put in enough work and effort on the blockchain system, the system rewards them with bitcoins.
Miners often come together to build energy systems and put-up computer hardware that can run complex equations for mining to be successful. After confirming the legitimacy of a transaction, the transaction is added to the block and the miner is rewarded with bitcoin when the block is completed.
It is still considered a profitable method, especially in areas where electricity is much cheaper. When we compare the current price of around $42,000 with the one that was present two years ago, mining can be profitable even in countries with more expensive electricity, like South Korea, Denmark, and more.
However, the situation was quite different when the value was around $10k. During that period, large mining centers were opened in countries with cheaper utilities, like Russia and China.
What is Bitcoin halving?
Now that we know how mining works, let us look at halving. In 2009, the reward given to miners for successfully mining a block of bitcoin was 50 bitcoins. According to the bitcoin whitepaper, after every 210,000 blocks are mined, the reward for each block would be cut in half.
Mining 210,000 blocks of bitcoin take approximately 4 years and the first halving took place in 2013. As of 2013 the reward for every block of bitcoin successfully mined was 25. Another halving took place in 2017 and the reward for successfully mining bitcoin at this stage was 12.5 blocks. The last halving happened in May 2023 and the reward for every block mined is now 6.25.
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How does halving affect the price of bitcoin?
Scarcity always drives the prices of goods and if that particular good is in demand, the price will surge higher. With each halving season, the number of bitcoins that can be created reduces and miners will sell the coins to the highest bidder. In the past, bitcoin halving has been accompanied by a massive surge in the price of the cryptocurrency. During the period of the halving, the price might be stable but it has often been the trend for bitcoin price to rise massively a year after the halving event.
On Nov 28, 2012, the first halving happened. The price of bitcoin at this time was 12 dollars and as of Nov 28, 2013, the price had risen to an astronomical 1,217 dollars. The second halving which happened on July 9, 2016, saw bitcoin rise from 647 dollars to 19,800 dollars within a year. The most recent halving which happened in May 2023 saw bitcoin rise to over 60,000 dollars and the price has stabilized in this region ever since.
One of the reasons for such affection of halving is the fact that the complexity of the process is increasing, making it more difficult for miners to create new units. On the other side, this is not a rule, and there is no reason to think that the value will most certainly increase right after the next halving that will happen in 2024.
The simple reason why it is getting more expensive is that less BTC can be created after the process. Considering the high demand, it is not a surprise that values are increasing so frequently. For example, the halving in 2023 reduced the daily production of BTC from nearly 2,000 to under 1,000 units. A couple of months after the event, the price started to reach its previous peak and then reached new records in 2023.
Other Factors that Are Affecting the Price
As we already mentioned, there are no strict rules where people can expect a higher value only because the mining process is getting more difficult. That is only one of the factors that affect the price. The biggest one is related to supply and demand.
It is a simple economic rule where prices are being created according to the number of investors and sellers on the market. Besides that, regulations of bigger economies can also have a role, along with large investors. The best example is related to the influence of Elon Musk on this crypto during 2023.
The competition is still not able to affect Bitcoin, but that can change in the future as well. Some of the main candidates are Ethereum, Cardano, Litecoin, and more. It is essential to learn more about these factors and follow the most recent news if you are trading on this market.
High volatility is one of the main features, which is similar to the stock market. Following the frequent changes in values, every day might provide you with an excellent profit if you determine the right moment for buying or selling.
Moreover, many experts share the same opinion about the values of BTC in the future, and that is that it might reach a much higher value. Some of them even suggest that the price will reach $100,000 in the next few years.
Still, if you are trading with cryptocurrencies, it is never a good idea to follow only one source for predictions and make some rush moves. The same is if you are interested in buying a mining rig. If the price continues to rise over time, mining will remain profitable even after the next halving in two years.
A lot of things can affect the price of bitcoin and halving happens to be one of them. The next halving event will take place in 2024 and we should see the full effect by 2025. According to the bitcoin white paper, this halving and mining will continue to the year 2140 and we will see a lot of activity in the bitcoin space moving forward.