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Bitcoin's Next Halving Date: What It Means & Should You Buy?

Bitcoin’s Next Halving Date: What It Means & Should You Buy?

Bitcoin's next halving date is rapidly approaching on April 17, 2024 – but what does the "halvening" really mean? We look at what happens, the historical impact on price, and what else you need to know.

Bitcoin’s upcoming halving date has armchair economists excited, to say the least. On April 17, 2024, the number of Bitcoin entering circulation will halve from 6.25 BTC to 3.125 BTC per block. Economics 101 suggests that any decrease in supply will result in a higher price if demand remains the same. So, will the “halvening” lead to a Bitcoin rally?

This article examines what halving means, the historical impact of “halvenings,” and the long-term implications for the world’s biggest cryptocurrency (and you as an investor).

A Brief Primer

Before diving into the Bitcoin “halvening,” let’s discuss the underlying mechanics.

Satoshi Nakamoto – a pseudonym for the person or people who designed Bitcoin – launched the cryptocurrency in January 2009.

At the core, Bitcoin relies on asymmetric encryption to validate transactions, supply tokens, and secure the system. The underlying technology makes adding transactions to the blockchain computationally expensive but trivial to validate.

A decentralized network of nodes shares a distributed ledger (blockchain) and receives new tokens in exchange for completing a proof-of-work task and adding a valid block of transactions. And since thousands of nodes have a copy of the blockchain and can quickly validate transactions, it’s challenging to add a transaction to the blockchain fraudulently.

Satoshi Nakamoto also designed Bitcoin to be inherently deflationary. While central banks can issue new fiat currency, Bitcoin programmatically limits the total supply of Bitcoin to 21 million by decreasing the block rewards over time. Nodes completing the proof-of-work task to add transactions earn fewer tokens every four years.

What is the Halving Date?

The Bitcoin halving date refers to the specific date every 210,000 blocks, or roughly four years, that Bitcoin halves the block rewards. In Bitcoin’s early days, miners received 50 BTC for each successful block. But, by 2020, that figure fell to just 6.25 BTC per block. Eventually, the block reward will approach zero, resulting in no new supply.

What is the Halving Date?
Bitcoin halving dates versus total supply over time. Source: BuyBitcoinWorldwide

The next halving date is projected to occur in April 2024 and will cut block rewards from 6.25 BTC to 3.125 BTC per block. In other words, Bitcoin miners will receive half as much a reward as they would before the halving date. And that considerable change in mining incentives could impact the market significantly.

What’s the Impact on Price?

Fewer rewards will likely lead to less mining activity and, ultimately, a drop in supply. As a result, you could see an increase in price if demand remains the same. It’s Economics 101, right?

Well, historically, there has been an increase in price following a halving:

What’s the Impact on Price?
Bitcoin has historically performed well following a halving event. Source: CoinDesk

But, looking at these historical events, it’s clear that the increase doesn’t come immediately. In many cases, it took several weeks or months for the price to meaningfully increase compared to a preceding timeframe of the same length.

The famous financial disclaimer is that past performance doesn’t guarantee future results. In reality, there are many other factors at play.

If you could reliably see a bump in price in April 2024, everyone would rush to buy ahead of the cutoff and send prices sharply higher. Then, after the event, they may sell to lock in their profits (“sell the news”). Ultimately, the move in and out of Bitcoin could create very uneven demand, making a price increase less predictable.

There could also be more variables on the supply side.

For example, miners may respond by cutting costs rather than reducing their hash rate. Many miners are moving their operations to Central American countries where energy prices are more affordable. The halving could weed out many smaller operations, enabling larger miners to ramp up their computational power.

The takeaway is that prices have historically increased following a “halvening,” but there’s no guarantee that they will do the same in April 2024.

What Happens Over the Long-term?

The bigger story is what these “halvenings” mean for Bitcoin’s long-term future.

Mining rewards draw computing power to Bitcoin, but fewer nodes may be interested in validating transactions as rewards shrink. And, based on what we learned earlier, fewer nodes jeopardize security. If 10,000 nodes have copies of a ledger, it’s easy to spot a fake, but if there are only five nodes, compromising three of them makes attacks easier.

Experts agree that transaction fees will become an increasingly critical part of the compensation model for nodes. Higher transaction fees may be necessary to encourage node participation and discourage attackers from implementing double-spend attacks. But that could also deter usage if they become too high.

Transaction costs will either come from users ponying up more to execute a transaction or from a larger volume of transactions. But even Satoshi Nakamoto speculated, “I’m sure in 20 years, there will either be very large transaction volume or no volume.”

The good news is that reaching that critical junction will take a while. Most experts calculate that the last Bitcoin won’t be mined until sometime in 2140, although cracks could begin to surface well before that date.

What About Other Cryptocurrencies?

Bitcoin isn’t the only cryptocurrency to leverage halving dates to decrease token supply and create a deflationary dynamic. In fact, “halvening” dates are a critical component of many proof-of-work consensus mechanisms.

For example, Litecoin halving dates occur roughly every 840,000 blocks or every four years. The most recent “halvening” was in August 2023, and we’re expecting the next event in 2027. Ravencoin halving dates occur every four years after mining 21 million RVNs. These cryptocurrencies all use a proof-of-work consensus mechanism.

But there is a notable exception: Proof-of-stake cryptocurrencies.

Ethereum, the world’s second-largest cryptocurrency, transitioned to a proof-of-stake mechanism that eliminates the need for halving dates. And many other cryptocurrencies are taking the same route to reduce the power consumption of proof-of-work, decrease transaction costs, and improve scalability over time.

Does that mean you should migrate to Ethereum for your NFTs? That’s entirely up to you; it may be the less complicated tactic for your altcoins, but just as with all investments, greater risk often leads to greater rewards. You can try to use the halvings to your financial benefit, but there are no guarantees, so you will, of course, want to proceed cautiously.

The Bottom Line

The upcoming Bitcoin halving date has led to much speculation about the impact on price. While history suggests it could be bullish, multiple factors are at play, making it far less than a certainty. The bigger story may be what the “halvening” means long term and how it might impact the world’s largest cryptocurrency over time.

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This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.

Justin Kuepper