Bitcoin "Halving" - Significance and Prospects

Andrei Iacomi
English Section / 20 martie

Bitcoin "Halving" - Significance and Prospects

Versiunea în limba română

Bitwise Asset Management: "The launch of ETFs was the moment of Bitcoin's IPO"

Bitbank: "We expect interest rate cuts, halvings and ETFs to lead to strong price growth in the second half of the year"

JP Morgan: "The reduction of rewards will lead to an increase in the production costs of the "miners", with a negative impact on their profitability"

"Once the euphoria induced by the "halving" of Bitcoin subsides, the price will fall to $42,000", say the analysts of the American bank

Bitcoin is up an impressive 50% this year, with the world's most popular cryptocurrency recently hitting a new all-time high of $73,620, according to data.

The rise was mainly attributed to the launch by financial industry giants such as BlackRock or Fidelity of ETFs on Bitcoin spot, an event which, according to some analysts, increases the role of the crypto area in "mainstream" finance.

But there is one more event that has historically been accompanied by an increase in the price of Bitcoin.

"Having" the rewards of Bitcoin "miners"

Bitcoin is based on blockchain technology which involves the creation of records of information - called "blocks" - that are linked in a chain through a process called "mining".

These "miners" use computing power to solve mathematical puzzles and build the blockchain, and for that they are rewarded with new Bitcoins, according to Reuters. Through their activity, "miners" process transactions and secure the Bitcoin network, protecting it from being compromised by malicious actors.

Satoshi Nakamoto, the pseudonym of Bitcoin's creator, designed the project so that there would be a limited supply of 21 million tokens. The "halving" was included by Nakamoto in the Bitcoin code and means the halving of the reward received by the "miners".

Thus, the amount of new Bitcoin created decreases, according to Reuters. In 2009, the system rewarded successful "miners" with 50 Bitcoins for each new block of information added to the network, once every ten minutes. Since then there have been three halvings, so now 6.25 new tokens are released into the network every ten minutes, according to CoinDesk.

Bitcoin "Halving" - Significance and Prospects

Each "halving" occurs approximately once every four years, with the next one expected in a month, on April 23, according to the Nice Hash platform. After that time, the "miners" reward will be reduced to 3,125 new Bitcoins every ten minutes.

Bitcoin Price Rises After Each Halving

Historically, Bitcoin "halvings" have been preceded and followed by increases in price, with some analysts attributing this to the dynamics of supply and demand. When supply decreases and demand remains at least the same, theoretically the price should increase.

Bitcoin "Halving" - Significance and Prospects

The last time this happened was on May 11, 2020, according to Coin Desk's chart. However, there is no clear evidence that the "halving" was the catalyst for Bitcoin's rise, given that the development occurred in a climate marked by the relaxed monetary policy of the main central banks, which led to appreciations for all risky assets, to which - added purchases by retail investors who, staying at home as a result of the restrictions imposed during the pandemic, started trading cryptocurrencies, according to Reuters. In other words, it is difficult to isolate the impact of the "halving" on the price evolution, but historically Bitcoin's quotation has increased after each such event.

Analysts' opinions

Financial markets factor in expectations about the future, so many investors may have purchased Bitcoin in anticipation of the "halving" next month. Crypto software and investment firm MicroStrategy alone spent more than $1 billion buying more than 34,000 Bitcoins between October 2023 and February 2024, according to Techopedia.

But past performance is no guarantee of future results, and opinions on future cryptocurrency price performance differ across the industry. Optimists are of the opinion that the introduction of ETFs on Bitcoin spot has created a new context in the market, compared to the previous "halvings".

Matt Hougan, chief investment officer of Bitwise Asset Management, characterized the launch of ETFs as "Bitcoin's IPO moment," according to Techopedia.

Yuya Hasegawa, an analyst at Japanese crypto exchange Bitbank, says the Federal Reserve's possible interest rate cut will increase demand for both direct Bitcoin and ETFs. "Furthermore, the halving will reduce the supply of Bitcoin, so we expect these three elements - falling interest rates, the halving, and ETFs together to lead to a strong price increase at some point in the second part of of the year", according to the mentioned source.

Graeme Moore, Head of Tokenization at the Polymesh Association believes that after the "halving", Bitcoin can reach $100,000 in 2024. "We're already seeing the effect of the upcoming "halving', with a 50% price increase in February," Moore said, according to an article published by Techopedia late last week. "Furthermore, the continued demand from new Bitcoin ETFs shows that the market is starting to see the value of a global, decentralized asset that is proving to be rare. If previous cycles are any indicator, the price of Bitcoin will continue to rise until the "halving' and beyond."

Not everyone believes that the price of the cryptocurrency will continue to appreciate after the "miner" rewards are cut in half. At the end of February, JP Morgan warned that the "halving" will cause a sharp drop in the price of Bitcoin, given that the reduction of rewards to 3.125 Bitcoins per block will lead to an increase in the production costs of "miners", with a negative impact on profitability their. However, this is expected to put additional pressure on sales.

"The cost of production has empirically acted as a lower bound for the price of Bitcoin. Currently, the midpoint of our estimated production cost range is at $26,500, which would double after the "halving" to $53,000," JP Morgan wrote, quoted by Techopedia.

The financial institution estimates that "once the euphoria induced by the Bitcoin "halving" subsides after April, the price will drop to $42,000".

Price aside, there are reputable analysts and prominent figures in the financial world who are skeptical of cryptocurrencies, with some even characterizing them as ponzi schemes. "Cryptocurrencies have virtually no value and produce nothing. They don't reproduce, they can't send you a check in the mail, they can't do anything, and what you're hoping for is that someone comes along and pays you more money for it later , but then that person has a problem. In terms of value - zero," legendary investor Warren Buffett said in 2020 on CNBC.

Yesterday afternoon, Bitcoin was trading at around $63,340, according to data.

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