What Is the Bitcoin Halving and How Will It Impact Crypto Prices?
prices surged to a record high this week, topping $72,000. But crypto bulls expect more gains after a sharp cut in Bitcoin’s new issuance in April, an event known as the ”halving.”
Here’s what investors need to know.
What Is the Bitcoin Halving—and When Does It Occur?
One of Bitcoin’s more appealing features is that supplies of new tokens are programmed to increase at a predictable rate, based on underlying software code. New tokens go into circulation every time Bitcoin “miners,” who process transactions on the network, win a computing race to validate a block of transactions.
The reward for each block is now 6.25 Bitcoins, worth about $441,000 at Bitcoin’s recent price of $70,600. That is scheduled to be cut to 3.125 Bitcoins in mid-to-late April when the next halving is expected.
These events happen roughly every four years and will continue until Bitcoins in circulation reach a software-defined cap of 21 million tokens. So far, more than 19.6 million Bitcoins have been mined, leaving roughly 1.4 million left to be issued.
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How Will the Halving Impact Bitcoin Prices?
Since Bitcoin has no underlying value—only a cost to produce—its price is entirely subject to supply and demand dynamics. The halving tends to have a positive impact because it further restricts supply, and Bitcoin has a history of outperforming after prior halvings.
After the last halving in 2020—which came after the 2017 bull market—Bitcoin gained 33% in the next three months, was up by more than 80% at the six month mark, and more than 500% a year after the halving, according to crypto tax firm CoinLedger.
Bulls are even more optimistic about the next halving because of current demand trends, fueled by new exchange-traded funds issued by companies such as
Fidelity Investments, and ARK.
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“The drop in the amount of mined Bitcoin a day means something has to give—and, in this case, that means price has to give,” said Zachary Townsend, CEO of crypto-focused insurance firm Meanwhile. “Given this dynamic, we expect previous record highs for Bitcoin to durably be surpassed.”
Not everyone is optimistic. Traders have long known that April’s halving was coming and have already pushed up prices in anticipation. While Bitcoin does tend to outperform in the wake of a halving, some analysts argue it may already be priced in.
“The Bitcoin halving event and its effect are predictable and in our opinion are well factored into the current Bitcoin price,” Nikolaos Panigirtzoglou, who leads a team of analysts at
wrote in a December note.
Bitcoin has long defied conventional analysis, though. In the same note, the team at J.P. Morgan failed to correctly call the impact on prices from the SEC’s approval of spot Bitcoin ETFs. “We continue to see a high chance of buy-the-rumour/sell-the-fact effect once the SEC approves spot Bitcoin ETFs,” Panigirtzoglou wrote at the time. Bitcoin prices are up more than 50% since the SEC approved the first spot ETFs on Jan. 11.
Bitcoin will ultimately move on the whims of investor demand. If demand continues to rise after April—whether through spot ETFs or platforms like
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—then the halving will ensure that prices keep rising.
How Will the Halving Impact Bitcoin Mining Stocks?
Another question is how shares of Bitcoin miners, like
and
will react to the next halving.
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The mining business model is extremely energy intensive and sensitive to both energy and Bitcoin prices. As energy prices skyrocketed after Russia’s invasion of Ukraine in 2022, which came as digital assets plunged into a prolonged bear market, crypto mining stocks tanked.
The halving looks like a risk to miners: it will essentially cut their profit in half. But the impact could be moderated if Bitcoin prices remain at record levels or go higher. The exchange rate between Bitcoin and traditional currency like U.S. dollars is key for miners, which sell tokens they mine, or use them as collateral for debt to fund operations.
Another factor is how hard mining computers have to work to validate each block of transactions. Bitcoin is built on a “proof of work” concept whereby miners compete to solve cryptographic puzzles to ensure that a block of transactions is valid. The more miners compete, the more difficult the puzzles, and more energy is expended. Conversely, if Bitcoin prices fall and miners drop out, difficulty declines and energy costs ease.
Investors appear to view the halving as a negative for miners. After surging in 2023, shares of the miners have fallen as the halving has approached. Marathon and Riot are both down 27% in the past month, with Bitcoin up more than 40% over the same period.
“The Bitcoin halving reduces the block reward that miners receive for verifying transactions, which can decrease their profitability unless the price of Bitcoin increases to offset the reduced reward,” analysts at market intelligence group CryptoQuant wrote in a Monday note. “Stocks are reflecting this.”
Write to Jack Denton at jack.denton@barrons.com
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