What Investors Need to Know About Bitcoin Halving
One of the most important events for every Bitcoin user and investor is upon us. The event known as halving plays a pivotal role in the Bitcoin system, and it will affect its value, as well as supply and demand.
In this article, we’ll discuss what halving is and what investors need to know about it. Even though halving is a technical matter and not a financial one –investors should be familiar with it and try to learn about its mechanics and implications.
What is it?
Bitcoin halving is a programmed event that halves the reward given to miners for processing transactions. It also adds new blocks to the blockchain. Halving is scheduled to happen every four years or after 210,000 blocks have been mined. Mining a block takes about ten minutes, and depending on how many processing units are involved in mining, it’s not always easy to know which will happen first.
The goal of the process is to make sure that the supply remains finite, with a maximum cap of 21 million coins. That way, Bitcoin won’t lose its value due to the inflation of blockchain blocks.
The History of Halvings
Halvings have been a part of the Bitcoin ecosystem since day one, and sites such as Cryptomaniaks.com have covered it every time it has taken place in the past.
The first halving occurred on November 28, 2012, when the block reward was reduced from 50 to 25 Bitcoins. This has led to an increase in the price and value of Bitcoin.
The second halving took place on July 9, 2016, reducing the reward to 12.5 Bitcoins, which was again followed by a significant price surge the following year. It, too, has led to an increase in Bitcoin prices.
The most recent, the third halving, occurred on May 11, 2020, further reducing the reward to 6.25 Bitcoins. Halving has led to increased media attention each time, and therefore, it has affected the value of cryptocurrency.
When Will the Next Halving Take Place
The next Bitcoin halving is expected on April 20, 2024, after block 740,000 has been mined. It will reduce the block reward from 6.25 BTC to 3.125 BTC. This will be the fourth halving in history. Given the same schedule and increase in adoption, the fifth one will take place in 2028.
What Won’t Happen?
There are a few common misconceptions about the halving that are often repeated online, even by those who are otherwise knowledgeable about how cryptocurrencies work. We will go over some of these that the investors should be aware of.
The Price Won’t Rise Right Away
Many believe that the price of Bitcoin will rise immediately after the halving. The value did rise after each halving we’ve had before, and it was rather fast, but the price still depends on market forces, and it may take some time. Investors who have bought Bitcoin for this purpose – to short it and make gains based on this rise may end up disappointed.
There are also many other factors that will affect the value of Bitcoin that go beyond the halving and that are often beyond the control or even understanding of an average investor. With the introduction of ETFs, the overall state of the stock market will also affect crypto values.
Halving Isn’t Priced In
On the other hand, there are others who claim that halving won’t affect Bitcoin’s price at all. The claim goes that after experiencing the previous halvings, Bitcoin started calculating the halving effect in their price.
This, too, is a simplistic example of a cryptocurrency as it doesn’t take into account all of the factors that lead to the change in Bitcoin value and price. The halving will have an effect, but so will other circumstances.
Halving Won’t Destroy the Mining Industry
Some believe that the change in block value means that it will no longer be profitable to mine Bitcoin. This is a mistake, and the experiences of the previous halving show that the mining continued after each one. In reality, halving is needed to keep the mining process sustainable and affordable.
On the other hand, many cryptocurrencies, including Bitcoin, are trying to move away from mining and use the Proof-of-Stake method instead. For Bitcoin, this process is going slowly, but things may change in the years to come.
Halving Will Increase Fees for Transactions
Many features affect the fees for crypto transactions. One of them is network demand and the space available in blocks. Based on this, it is true that the halving may lead to an increase in fee costs.
However, the main factor that affects the fee structure is simply market forces. This means that if there are more users, it’s affordable for the fees to be lower and the other way around.
Halving Isn’t Unique to Bitcoin
Bitcoin is the first one to implement halving as a concept. It was a unique feature at the time, and it created a solution for inflation in the crypto world. Now, when Bitcoin isn’t the only cryptocurrency out there, there are many other currencies that have a similar system in place.
For investors who plan to diversify their portfolio and invest in other cryptocurrencies, it’s important to find out what their practices are in this regard and when they take place.
Halving Doesn’t Guarantee That Bitcoin Won’t Lose Value
Some believe that halving will guarantee the value of Bitcoin in the years to come, as it’s a measure against inflation. This is a mistake since no one can guarantee the value of a cryptocurrency, as it depends on market forces, meaning how many users it has.
There are no sure things in the world of crypto investing. The only way to increase your chances is to diversify your portfolio and know when to quit a cryptocurrency if it’s not doing as well as you expected. This isn’t to say that the practice is irrelevant, and Bitcoin will continue to do it.
How to Prepare?
There’s little an investor can do about the halving as it’s a part of the protocol, and it will happen no matter what. Investors should do what they can to learn about the process and its implications. They should also stay informed about the crypto markets in general.
When making long-term plans for a crypto portfolio, investors should diversify and keep in mind that the best way to go is almost always to simply hold on to an investment and wait for it to bounce back.
Conclusion
Halving is a part of the Bitcoin protocol. It refers to reducing the reward given to miners for processing transactions. This is done on a regular basis, and the goal is to prevent inflation if the number of chains continues to increase. It will affect crypto investors in many different ways, including Bitcoin’s value.
There are many misconceptions about the halving, and investors should stay informed about it in order to avoid these. After the previous halvings, the value of Bitcoin rose, and so did the fees involved in transactions. There are other market forces that affect this beyond the halving.
Disclaimer: The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.
