Bitcoin is arguably the most famous cryptocurrency in the market because it was the first one introduced to the public back in 2009 by an unknown entity that goes by the name of Satoshi Nakamoto. Bitcoin is used to reward the miners who maintain the network. However, there can only be a total of 21 million Bitcoins that can ever be minted, increasing the value of the cryptocurrency as more people demand it. An event also occurs every 210,000 blocks to control the issuance of new coins and maintain its scarcity.
That event is called the Bitcoin halving and this is where the rate of issuance of new Bitcoins is cut in half. Miners were initially rewarded with 50 bitcoins for every block successfully mined. That number was reduced to 25 after the first Bitcoin halving in 2012. There have been two other halving events since, setting the rewards at its current state of 6.25 Bitcoins per block minted. The next Bitcoin halving is predicted to occur sometime in the middle of April 2024.
Most of Bitcoin’s mechanisms are set in stone and coded within the protocol, unlike its fiat counterpart which monetary policies of central banks can influence. The halving mechanism is primarily driven by the need to control the rate of new token issuance and maintain its scarcity over time. Scarcity is a fundamental principle underpinning Bitcoin’s value proposition, and of course, has significant economic implications for the cryptocurrency’s supply dynamics.
The Bitcoin halving is a significant event in the cryptocurrency market as the rewards decrease is expected to have a positive impact on the token’s price. Several factors may influence Bitcoin’s price movements following a halving event. These include changes in supply and demand dynamics, investor behavior, institutional adoption, technological developments, macroeconomic trends, and regulatory developments. Although there is no assurance that Bitcoin’s prices will increase after the halving, history tells us that Bitcoin has reached local highs around a year after the halving occurred.
During the initial halving, Bitcoin’s price surged from $13 at the time of the halving to $1,152 at the peak of the following year. Similarly, the second halving witnessed Bitcoin’s price rise from $664 during the halving to $17,760 at the peak of the subsequent year. Bitcoin was priced at $9,734 on the latest halving event and increased to $67,549 the following year’s peak. It will be interesting to see how the market plays out with the fourth halving just around the corner.