Experts have debated the future of bitcoin since the first institutional money began trickling into the cryptocurrency market. Regardless of whether people are bullish or bearish on the digital currency, it’s clear that investors are still excited about the opportunities it presents. And the next of those — the bitcoin halving event slated for this week — is keeping that excitement high.
Going into 2024, there were two events that crypto enthusiasts predicted would bolster bitcoin prices and drive a rekindled interest in the market. One of these was the approval of bitcoin ETFs in January. That event, as expected, brought billions of dollars in inflows to the 11 approved ETFs and sent bitcoin prices skyrocketing to an all-time high of $73,750.
The second event, the bitcoin halving, is approaching. This occurrence has to do with the tech side of bitcoin; when it happens, the production of new bitcoin will be — wait for it — halved.
There’s no set date for the halving event. Instead, it will occur after 210,000 blocks on bitcoin’s blockchain have been filled with data. Judging by the current rate at which the blockchain is being filled, experts expect this to happen on April 19 or 20. The event itself will mostly impact bitcoin miners, but it’s a big deal for most anybody connected to the asset. Here are some of the grandest changes ushered in by the halving.
Miners will earn less bitcoin for their work
First and foremost, the bitcoin halving event will affect bitcoin miners. Because these are the people and companies that produce bitcoin, the halving will mean their work yields far less reward than before.
Miners are competing with each other all over the world, all the time. The bitcoin network gives these miners intricate mathematical problems, which the mining computers work to solve. When one of these miners solves a problem, it is recorded to the blockchain and the network creates a reward of new bitcoin, which goes to the miner.
It’s a lucrative venture, but it becomes less so as time goes on. For context, since bitcoin’s inception, these halving events occur every four years. The first miners of bitcoin earned 50 coins for their work. When the first halving took place, they would only earn 25 bitcoin. After three halvings, miners now earn just 6.25 bitcoin per block. Come this weekend, they’ll be earning only 3.125 per block, which equates to over $194,000 at current prices.
Bitcoin prices are likely to see a boost
Now, understanding the mechanisms of the halving, it may be easier to see the effect it could have on bitcoin prices.
For bitcoin investors, cutting the production of new coins in half creates a supply and demand bottleneck. In terms of fiat currency, this would be akin to the U.S. Mint suddenly deciding to halve the volume of money-printing every four years, which would result in the value of the U.S. dollar going through the roof.
To further demonstrate how halving could drive bitcoin prices higher, imagine the bump in value the USD would experience if it was a finite currency. There will only be about 21 million bitcoin ever mined. As bitcoin adoption continues to increase, the digital asset will increase in scarcity, and its price will presumably rise accordingly. The production of bitcoin over time is meant to help scale up its adoption, but slowing the inflow of new bitcoin into the market will keep that demand high regardless.
Given these factors as well as historical context, it’s likely that a price rise will follow the incoming halving event. Past halving events have evidenced this, with every previous halving event preceding staggering price increases. In 2020, for example, bitcoin prices increased from $8,610 to $11,588 in just three months.
Keep in mind that these upswings tend to take place in the months following a halving event, rather than immediately after. A recent JPMorgan report said the price of bitcoin could fall in the immediate aftermath of the halving, due largely to the continuing outflow of money from bitcoin investments like ETFs.
The energy use of bitcoin will rise
There’s plenty of valid concern over the energy consumption of crypto mining. The energy required for bitcoin mining alone could power a mid-size nation year-round. In America, crypto mining consumes nearly 2% of the country’s power usage. This sapping of power is a large part of why China outright banned the practice.
The upcoming halving event will only make this situation worse as crypto miners will be doing the same amount of work for half the reward. Framed differently: It will take twice the amount of energy to mine bitcoin now.
However, there is a bit of nuance to this fact. As bitcoin mining becomes less profitable, miners will drop out of the competition. Fewer miners means less mining difficulty, which in turn means less energy consumption. In theory. If bitcoin prices shoot up like most expect with the halving, miners will not be incentivized to stop mining but rather could be more galvanized if the asset’s price again closes in on its all-time high.
Calls for bitcoin utility will grow louder
Bitcoin is a polarizing topic, especially when its price is soaring like it has been in 2024. In times like these, bulls and bears alike are at their most vocal, meaning even louder calls for bitcoin to become more useful as an actual currency could emerge.
Many bitcoin bulls have come to terms with bitcoin’s lack of practical use, seeing it instead as a store of value like gold. Still, there is hope among that crowd that the digital asset will become a useful currency that can one day compete with fiat money like the USD.
Bears, too, demand that bitcoin find its use case. Many crypto skeptics take exception to the idea that bitcoin is a store of value, and not a currency, arguing that it has no real value giving credence to its price. So, until bitcoin develops some kind of practical use, these criticisms of the coin will continue to linger.
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