Bitcoin halving 2024 is different: Here's why
In April 2024, estimated to be on the 19th or 20th, the rate of new bitcoin being generated will be reduced by half when the 840,000th block of transaction data is added to the Bitcoin blockchain. This event is a key feature of Bitcoin’s economic model, which gradually reduces new supply by 50% approximately every four years.
What is a Bitcoin halving?
Bitcoin halvings refer to programmed events within the Bitcoin network that halve the rewards provided to miners for processing transactions and adding new blocks to the blockchain. A block represents a file containing 1 megabyte of data.
A Bitcoin halving occurs approximately every 4 years or after 210,000 blocks have been mined. For example, it takes about 10 minutes to mine a single block. A halving event reduced the rate at which new Bitcoins are being generated.
The main objective of Bitcoin halving events is to keep Bitcoin’s supply under control as well as ensure that it reaches its maximum cap of 21 million coins. It directly affects Bitcoin by increasing its value over time due to a reduced amount of new coins entering the market to align with the law of supply and demand.
If you want to know more about the magic of 21 million, we suggest reading this article: 'Why there'll only ever be 21 million Bitcoin'.
The event is automatically triggered once 210,000 blocks have been mined since the last halving event. This precise count is implemented within the Bitcoin protocol and cannot be changed without forking the blockchain and producing a new cryptocurrency.
Basics of Bitcoin mining
To understand Bitcoin halvings, users must first understand the Bitcoin ecosystem. The Bitcoin blockchain is made of a network of computer networks known as nodes which present the running software for Bitcoin and encompass a history of transactions. The term mining is not used literally but as a reference to how precious metals are harvested.
To learn more about Bitcoin network's participants, why not read this article: 'What role does a Bitcoin Full Node play?'.
All of the underlying nodes are responsible for the approval or rejection of transactions on the Bitcoin network; in other words, nodes need to validate transactions and safeguard Bitcoin's network security.
Bitcoin mining refers to using computational power to participate in and validate transactions on Bitcoin's blockchain which utilises the Proof-of-Work (PoW) consensus mechanism.
Bitcoin mining is about resolving complex maths problems that require the use of special mining hardware and large amounts of electricity. The process of guessing the correct number or hash is known as Proof-of-Work. If a Bitcoin miner succeeds and adds a block to the blockchain, they receive rewards.
What would happen if a substantial number of Bitcoin miners suddenly quit Bitcoin mining?
In case a substantial number of Bitcoin miners decide to quit mining, this event would impact the hash rate and other aspects of the network. The overall hash rate would drop, the network security would be degraded, and block formation would take more time.
For example, if a significant number of miners quit at the same time, users would go to more rapid blockchains, and the Bitcoin network would be more susceptible to fraudulent actors.
Historical evidence demonstrates that Bitcoin halving events didn’t cause such reactions. For instance, when the 2012 halving event happened, the hash rate dropped down for a few months. However, shortly after the halving event, the hash rate and mining profitability continued to increase because halving events mainly benefited Bitcoin prices and the broader economic context.
A similar thing occurred During the second halving, but it took more time for the mining profitability to recover – it needed almost one year after the halving event. On the other hand, the post-halving hash rate continued to increase steadily.
Have there been other Bitcoin halvings in the past?
When Bitcoin was established, miners were paid 50 BTC per block. Early adopters were enticed to mine and secure the network even before anyone knew whether it would succeed. As explained above, the rate decreases by half for every 210,000 blocks mined.
The last three Bitcoin halvings since Bitcoin's inception happened in 2012, 2016 and 2020. The first Bitcoin halving event in 2012 reduced the mining rewards from 50 to 25 BTC. The Bitcoin halving event in 2016 reduced rewards to 12.5 BTC, and as of 2020, each newly added block generates 6.25 Bitcoins.
This system will continue until all Bitcoins are mined - as explained above, Bitcoin's total supply is set to be capped at 21 million BTC with no more Bitcoins being generated after the final halving event.
When is the next Bitcoin halving?
While the exact date is unknown, the next Bitcoin halving is expected in April 2024, after block 840,000 has been mined. The next halving will reduce the block reward for mining from 6.25 BTC to 3.125 BTC.
The 2024 halving event presents the fourth halving in the history of Bitcoin. The fifth halving is expected to happen in 2028.
What happens with Bitcoin's price during a halving event?
The first implication that comes to mind is that lower rewards for mining Bitcoin reduce the amount of money miners make by adding new blocks and validating transactions.
However, halving reward rates decreases the influx of new Bitcoin, and the law of supply and demand comes to the scene. If supply decreases, demand comes in, and the Bitcoin price changes. Therefore, halvings create scarcity. As supply decreases, Bitcoin’s price rises due to new parameters for demand.
Halvings reduce Bitcoin’s inflation rate; within the crypto space, inflation refers to novel coins being brought to the circulating supply. On the other hand, Bitcoin was originally designed to be deflationary. Simply put, each halving event has the potential to create a bull run for the cryptocurrency and increase its value.
The combination of a fixed total supply with a gradually decreasing inflation rate creates scarcity as well as implements a disinflationary feature into the cryptocurrency.
Will mining still be profitable?
Since mining activities require a lot of computational power to resolve maths puzzles, Bitcoin’s price would have to increase significantly for mining to remain profitable. It is a challenging task to stay competitive if prices do not rise with the decline in mining rewards.
Looking at past examples, profitability depends on the price of Bitcoin at the time of the halving event. While each Bitcoin halving decreases the profitability of mining in the short term, the price of Bitcoin determines the long-term potential.
If a halving event doesn’t critically impact Bitcoin’s price and it doesn’t increase, mining will be only profitable to big companies that have enough hardware and funding to keep the mining operations going.
Miners need to be on their toes and demonstrate efficiency; however, technological advancements enable miners to generate more hashes per second while consuming less energy at the same time.
Additionally, a broader degree of adoption by users and institutions may affect the broader economy. In that case, Bitcoin’s price is likely to increase due to a higher level of visibility and utility.
Why is the 2024 Bitcoin halving different?
To begin with, Bitcoin achieved a new all-time high (ATH) before the 2024 halving – something that has not happened in previous halving cycles. In the past, a rally and new ATH happened around a year after the halving.
The total supply of 21 million coins is not the footing of Bitcoin. Instead, the predictability of supply and the inflation rate have been the main drivers of demand and the notion that Bitcoin presents a superior monetary system.
Halvings can be described as the driving force of one of the most key transformations of incentives in the long run; the move from funding the miners from block rewards to being funded majorly by the transaction fee revenue.
If we take a look at Bitcoin’s white paper, we’ll see that Satoshi Nakamoto explained that the incentive can be funded with transaction fees; if the output value of a transaction is less than its input value, the difference is made by a transaction fee that is added to the incentive value of the block containing the transaction.
Once a pre-established number of Bitcoins has entered circulation, the incentive can begin its shift to transaction fees and become a monetary system free of inflation.
Imagine having a jar of cookies that you and your family eat every day. In the beginning, you allow each family member to eat 10 cookies daily, but the amount has to be reduced in half every 3 months. The cookies become scarcer and feel more special with each reduction.
New kids on the block
Simply put – the 2024 Bitcoin halving is different because new factors came into play. As explained by several industry experts, the financial impact of this halving event will be partially influenced by current market dynamics, especially following the regulatory approval of spot Bitcoin ETFs and a higher degree of institutional adoption.
In January 2024, the world's first spot Bitcoin exchange-traded funds (ETFs) started trading. To gain more insight, check out this article: 'Bitcoin spot ETFs are here. How do I buy Bitcoin ETFs?'.
The 2024 halving of Bitcoin’s issuance may produce short-term challenges for miners’ revenue, but it is considered that it could have a different long-term impact due to positive market structures and key on-chain activity updates.
Another important aspect refers to the transaction fees miners receive from Ordinals inscriptions; Ordinals can be described as a novel incentive dynamic that was not present to any other halving in the history of Bitcoin.
Market conditions
Market conditions are an important aspect to look at; instead of attributing the post-halving price to halvings only, there is a bunch of historical evidence of how halvings got mixed up with important macroeconomic events.
For instance, in 2012 the big European debt crisis made people look at Bitcoin as an alternative store of value which contributed to a price surge from $12 to $1,100 at the end of 2013. Furthermore, the 2016 Initial Coin Offering boom had an indirect impact on Bitcoin by pushing its price from $650 to $20K by December 2017.
Finally, the 2020 Bitcoin halving event coincided with the Covid-19 pandemic; due to inflation fears, investors were driven to the crypto world and Bitcoin’s price went up to $68K by the end of 2021.
As you can see, this pattern suggests that Bitcoin price surges coincide with periods of macroeconomic uncertainty and the search for alternative investment options. While halvings safeguard Bitcoin’s feature of scarcity, the broader economic context, along with investor behaviour and demand dynamics, assumes a significant role in the determination of Bitcoin prices.
The impact of Bitcoin ETFs on the crypto market
Bitcoin ETFs can be placed in either the market conditions or adoption conditions category. While the concept is still in its early days, the regulatory approval of Bitcoin ETFs creates access to Bitcoin to a wider range of investors, capital market allocators, and financial experts; in time this could lead to a significant increase in mainstream adoption.
For example, the initial net flows amounted to roughly $1.5 billion in only 15 trading days; as stated by several analysts, these net flows absorb approximately the equivalent of three months’ worth of potential post-halving issues.
These initial net flows can be attributed to the initial hype and increased demand, but with steady inflows, Bitcoin ETFs could become the counterbalance to the selling pressure and mining difficulties.
Supply conditions
Fewer coins in circulation mean that the value of Bitcoin will rise with demand as it creates scarcity in supply. Industry experts and analysts have different opinions regarding the supply aspect.
Several experts and analysts claim that the bull run has already begun, while others see the halving event as a big catalyst for growth. However, they agree when it comes to the notion that this halving is different – the price dynamics are being impacted by the adoption of Bitcoin ETFs and the expected reduction of supply.
The notion of reduced supply has historically led to increased demand, which drove up the price of Bitcoin. Therefore, many analysts expect Bitcoin to touch all-time highs in 2024 and beyond. However, market dynamics are a complex concept, and other external factors will contribute to Bitcoin’s future narrative as well.
Adoption conditions
New research studies demonstrated a positive trend regarding crypto adoption. For example, among current crypto owners, approximately 63% hope to obtain more cryptocurrencies. Most desired currencies were listed as Bitcoin, Ethereum, and Dogecoin.
Roughly 21% of crypto non-owners stated that Bitcoin ETFs make them more likely to invest in the crypto space while 46% of U.S. citizens think that Bitcoin ETF approval will positively impact the whole blockchain industry in 2024.
Therefore, institutional endorsements produced a positive impact on potential users, along with recent pricing up-swings that contributed to Bitcoin’s market sentiment.
Bitcoin had a few big wins over the past couple of years, but a mass adoption of cryptocurrencies hasn’t happened yet. Several analysts stated that while Bitcoin’s halving will have a positive impact on the crypto market, it is unlikely to drive a full bull run. However, if the degree of crypto adoption rises, Bitcoin’s price could rise as well.
Technological conditions
When talking about new technological conditions surrounding the new halving event, it seems that many are mesmerised by Bitcoin Ordinals. The Ordinals Theory, accepted by the Bitcoin community, tells us that satoshis, the smallest unit of Bitcoin, from specific blocks, can be owned and tracked based on the arbitrary interpretation of the blockchain’s transaction history.
With the Bitcoin space constantly progressing, Ordinals are considered a significant innovation. Digital collectibles, that range from ordinary images to BRC-20 tokens, bring to the table a new aspect of utility. They have been inscribed into specific Satoshis, and have witnessed a notable growth to date.
That growth has been attributed to Bitcoin’s transaction fees as of February 2024, inscription fees have generated roughly $200 million which presents a significant transformation of miners’ revenue streams.
The reduction of block rewards will happen soon; at the same time, Ordinals bring to the table a new revenue stream as already 20% of total miner revenue stems from transaction fees linked to Ordinals. If this noticeable trend continues to showcase growth, it could resolve a major mining difficulty and provide an alternative source of revenue amidst the halving event.
On the other hand, the arguable success of Ordinals has brought attention to potential scalability issues and Bitcoin’s limitations. That suggests that another technological condition needs to be utilised; the crypto community is exploring Layer 2 scaling solutions similar to those in the Ethereum network.
Misconceptions about Bitcoin halvings
There are several misconceptions about Bitcoin halvings among users that mainly stem from misunderstandings about its impact on the Bitcoin network and the crypto market.
For example, many people think that the price of Bitcoin will rapidly increase after a Bitcoin halving. Historical trends have demonstrated price increases right after halvings but long-term gains don’t happen right away; the law of supply and demand just doesn't work in that manner, along with the possibility that external factors and market dynamics influence the price surge as well.
On the other hand, users tend to think that the halving is already priced. This is another misconception – the complexity of external factors and market conditions tell us that the halving’s whole impact might not be fully accounted for in advance.
A halving mechanism is a tool for controlling inflation but it doesn’t have the power to produce extraordinary changes. For example, some think that transaction fees might skyrocket after the event, but fees are based on the space available in blocks and network demand.
Secondly, the notion that halving events could lead to miners leaving the network is just a myth. We have already explained the mining process in this article and halving’s implications on Bitcoin miners. A mass exodus of miners is unlikely to happen. Adjustments in mining difficulties and technology advancements can help in sustaining miners’ profitability.
However, when it comes to the crypto space, it is important to educate yourself and stay updated. The halving process is designed to reduce the inflation rate in the long run and create scarcity but keep in mind that it doesn’t present a guarantee for Bitcoin’s value appreciation. The value of any crypto asset is susceptible to several factors such as technological conditions, regulatory changes, and market dynamics.
If you are new to the crypto space, we suggest taking a look at the Learn Crypto Academy to learn more about cryptocurrencies and crypto trading.
How to prepare for the next Bitcoin halving?
With the fourth Bitcoin halving coming, investors seek to benefit from potential market movements. Rational investors should carry out thorough research and apply risk management techniques.
To prepare for the next halving, it is important to engage in research and analysis on how past halvings affected Bitcoin prices and how market dynamics contributed to the outcome. It is important to take a look at the broader economic context and analyse current market conditions and external factors that might influence post-halving prices.
Many investors utilise the diversification technique; by allocating assets across divergent cryptocurrencies and exchanges, traders seek to minimise risk exposure of their crypto portfolios and prepare for potential crypto market volatility.
Risk management techniques include setting realistic objectives and determining the right degree of risk tolerance to secure investments. It is important to educate yourself as much as possible and remain responsible to navigate successfully through the space of crypto investing.