What is Bitcoin Halving? Here is Everything You Need to Know

Introduction to Bitcoin Halving

Every four years, something massive happens to Bitcoin – the grand event known as halving. It’s one of the biggest days in the crypto calendar and has historically played a massive role in the price of Bitcoin. Bitcoin halving occurs every 210,000 blocks, which roughly translates to every four years. The reward miners get for validating new transactions halves after each event, reducing the amount of new Bitcoin released into circulation.

Bitcoin halving was hard-wired into the blockchain’s code by creator Satoshi Nakamoto in 2009 to prevent inflation. This decision is a major key to Bitcoin’s growth from being relatively worthless to the cornerstone of a trillion-dollar industry.

Mechanics of Bitcoin Halving

To understand why Bitcoin halving is necessary, we must first understand the Bitcoin blockchain. Bitcoin’s public blockchain relies on thousands of independent computers (nodes) running mining software. Each computer is competing to solve a hash algorithm, a complex string of code that can only be brute-forced. Once a computer successfully solves the hash function, they can add the next block of transactions to the chain. In exchange for their efforts, they are rewarded with a certain amount of Bitcoin. It is this amount of BTC that halves every four years.

The halving is coded into the Bitcoin blockchain for a key reason – to keep the coin deflationary. There is only ever going to be 21 million BTC in circulation, so imagine if the reward for successfully mining on Bitcoin remained at 50 BTC (the first block reward). As the blockchain grew in popularity, the entire supply of BTC would’ve become quickly and widely available, making the coin significantly less valuable than it is today. Rather, the amount of BTC a miner can acquire (and therefore enter circulation) has reduced as Bitcoin’s gained both value and traction. 

Instead of releasing all BTC into circulation within a couple of years, the halving events will likely conclude around 2140 – once all 21 million Bitcoin are mined. Because of Bitcoin halving, it took less than a decade to mine the first 19 million BTC, and will take over a century to mine the last two million.

Bitcoin Halving Cycles

To date, Bitcoin has gone through three halving events. The first occurred in 2012, when the block reward sunk from 50 to 25 BTC. The next was in 2016 (25 to 12.5 BTC) and then 2020 (12.5 to 6.25 BTC). Each of these changes to the reward had major ramifications for not only Bitcoin’s price, but the overall crypto market cycle.

Although halving events are unique, they have had very similar impacts on the value of BTC. Historically, halving events tend to follow fairly major bear markets, often occurring 12-24 months into a crypto winter. What tends to come after is a slow, but steady uptrend that culminates in an explosive bull market. To put it simply, Bitcoin has hit a new ATH within 18 months of each halving event, which often sends the overall market into a frenzy too.

Bitcoin Halving and Market Behaviour

Bitcoin halvings often occur amid a crypto winter, when big investors in the market have shut up shot and HODL (or have already sold). This means that the supply of Bitcoin is already lower than usual – and then the rippling effect of a lower block reward slowly comes into play over the next 12 months. Gradually, as demand for BTC stays similar and supply falls, upward pressure is created on Bitcoin’s price. The dam eventually bursts and the icy crypto winter finally thaws. 

Of course, although basic supply and demand principles – paired with consistent historical performance – suggest that BTC halvings will have a positive effect on market values, there is no guarantees in cryptocurrency. It is still a young, evolving market than can be extremely unpredictable, so it’s always best to proceed with caution. Never fall into the mindset of an investment being a sure thing, especially in a volatile market.  

Related: How to buy Bitcoin in Australia. 

Future of Bitcoin Halving

Bitcoin halvings occur roughly every four years, so it’s pretty easy for people to guess when each future event will occur (2024, 2028, 2032 and so on). The much-anticipated 2024 halving is currently predicted for an April lift-off, following Bitcoin’s approval for a spot Bitcoin ETF in the United States. 

Many in the community are speculating that this combination of bullish BTC factors will send the crypto market into the stratosphere, seeing levels of widespread institutional adoption that the industry is yet to experience. More negative predictions think that this pressure on supply and investor interest is killing the core principle of Bitcoin, an anonymous mode of exchange removed from banks and governments. 

Either way, halving events can shape the next four years of a market cycle. They are always a milestone event every crypto investor has jotted down in their calendars.

It’s possible that as the crypto market matures, the necessity of a BTC halving will become less prevalent. Given the youthful nature of the blockchain, things can change on a dime – especially as regulators step in. It will be interesting to see whether halving can maintain its correlation with bull markets as we move into the future, or if its impact starts to lessen.

Conclusion

Bitcoin halvings are a must-watch event for investors. Although the impact of halving the block reward for miners isn’t immediate, the diminishing supply slowly trickles into exchanges and has caused major explosions in demand – and price. Each halving event is different, and as more and more occur we will have more data to analyse to truly understand its influence on the broader crypto market. But for now, all signs point toward Satoshi Nakamoto’s technique for preventing inflation was genius.