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Market update: the next Bitcoin halving event – what does it mean?


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Upcoming mid-April Bitcoin halving: What to expect? Delve into the Bitcoin halving's impact on mining rewards and its historical trend of triggering price surges. How might this event shape Bitcoin's future market value?

 

original-size.webpSource: Bloomberg

 

IG Analyst
 
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The Bitcoin halving event is due in mid-April – what does this mean?

Bitcoin halving is a scheduled event that occurs approximately every four years, or after 210,000 blocks have been mined. During this event, the reward for mining new blocks is halved, meaning miners receive 50% fewer bitcoins for verifying transactions. Halving is hard-wired into the Bitcoin protocol to ensure that the total supply of the currency is capped at 21 million, thereby introducing scarcity into the ecosystem. The next Bitcoin halving event is expected in mid-April this year.

Bitcoin mining is a critical process that underpins the functionality and security of the Bitcoin (BTC) network. Mining involves solving complex mathematical problems to validate transactions; and add new blocks to the blockchain. This process is carried out by powerful computers, often referred to as miners, which compete to solve these problems in exchange for rewards in the form of newly minted bitcoins, and transaction fees.

Balancing act: How mining difficulty and market prices shape Bitcoin's economy

Mining difficulty adjusts approximately every two weeks, to ensure that the time between blocks remains around 10 minutes, irrespective of the number of miners and their computational power. This difficulty adjustment can influence miner profitability. When prices are high, more miners are incentivised to compete, increasing the hash rate (the total computational power used to mine and process transactions).

Conversely, if the price drops and mining becomes less profitable, miners may exit the market, which can decrease the hash rate. If the price of Bitcoin falls below the cost of mining, miners may choose to hold onto their bitcoins rather than sell at a loss, potentially creating a supply crunch.

Bitcoin halving events historically lead to bullish market behaviour.

The first Bitcoin halving occurred in November 2012, reducing the mining reward from 50 BTC to 25 BTC. Following the halving, Bitcoin experienced a significant surge in value, going from around $13 to over $1,100 in the next year.

The second halving took place in July 2016, when the reward dropped from 25 BTC to 12.5 BTC after the halving. Bitcoin reached a high of around $20,000 by December 2017. The third halving, in May 2020, reduced the block reward to 6.25 BTC. Bitcoin surpassed its previous all-time high and traded at just over $69,000 in November 2021.

Historical Bitcoin halving price action

November 28th 2012

  • Halving Price - $13 --- 2013 Peak Price - $1,125

July 16th 2016

  • Halving Price - $664 --- 2017 Peak Price - $19,798

May 11th 2020

  • Halving Price - $9,168 --- 2021 Peak Price - $69,000

With two months to go before the next halving event, Bitcoin is pushing higher, helped in part by the recent launch of 11 spot Bitcoin ETFs. The strong demand for these ETFs has not only underpinned the spot price of Bitcoin but is also driving the price higher as the halving event nears. Bitcoin has regained the $50k level and may look at testing the all-time-high around $69k after the halving event reduces mining rewards by 50%.

Bitcoin weekly price chart

 

original-size.webpSource: TradingView

 

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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