The value of the cryptocurrency Bitcoin is expected to halve in April. These technical details, written into Bitcoin's code, occur every four years, when the value of new bitcoins being created halves.
The purpose is to reduce the time it takes for new bitcoins to be created and then enter the market. Since there will never be more than 21 million bitcoins, the halving process creates greater scarcity of the cryptocurrency.
So-called “miners” receive bitcoins, known as block rewards, by solving complex mathematical problems to verify and validate transactions, as well as to help keep the blockchain network secure.
In 2009, “miners” were given 50 Bitcoins, in 2012 they received 25, in 2016 they received 12.5 and in 2020 they received 6.25 Bitcoins for this operation.
This is what the upcoming new halving could mean for you as an investor and “miner”:
This is how it will affect investors
Although the “halving” itself does not directly affect the price of Bitcoin, investors’ expectations leading up to the halving can lead to highly unpredictable price movements, notes Douglas Boneparth. CNBC, President of Bone Fide Wealth. Boneparth has also owned Bitcoin since 2014.
“As the 'halving' approaches, speculation typically increases, which can lead to increased volatility in the Bitcoin market,” he says. “Investors may buy Bitcoin in the hope of potential price increases, but there is no certainty or guarantee of that,” Boneparth emphasizes, saying this could also lead to increased volatility.
Additionally, it is difficult to pinpoint exactly what is driving Bitcoin's volatility and price decline. Unlike stocks and bonds, cryptocurrency does not derive its value from the underlying assets.
The professor points out that the halving will create more scarcity, but since Bitcoin does not follow the typical rules of supply and demand, this does not mean the price will rise.
This is how it will affect the miners.
Now that the block reward has been reduced to 3,125, “miners” will receive $200,122 worth of Bitcoin (as of April 19) for the same operation.
Since “mining” requires expensive equipment and a lot of energy, some “miners” have to weigh the cost against the potential returns, Columbia Business School professor Omid Malkan tells the site.
While “miners” can also earn revenue from transaction fees, they make the majority of their money from block rewards that will essentially be halved after the next halving, he says.
“What will likely happen after the halving is that some miners will no longer be profitable and will stop,” Malkan says.
Meanwhile, Bitcoin is trading at all-time highs. At today's rate, one bitcoin now costs NOK 710,000 against the best bid of NOK 772,000. However, not everyone is careful in their estimates. According to CNBC, hedge fund manager Mark Yusko predicts that the price of Bitcoin will rise to more than $150,000 within the year.
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