- The next Bitcoin “halving” event is scheduled to take place in April.
- Previous halvings have lifted the cryptocurrency by reducing the number of new tokens in circulation.
- Bitcoin reached a new record high this week, and some analysts believe it could soon reach six figures.
It's been a big year for Bitcoin.
In January, the Securities and Exchange Commission finally gave its stamp of approval to 11 ETFs after months of speculation.
Then in February of the following month, the token rose by almost 50% – and on Tuesday, its price reached a new record high of over $69,000 for the first time since November 2021.
Next on the horizon is Bitcoin's fourth “halving” (or halving, if you prefer your cryptocurrency events to look like Hollywood horror franchises), which is scheduled to take place next month.
What is half?
New bitcoins are produced through a process known as “mining,” where computers solve complex mathematical problems to validate and secure transactions on the cryptocurrency network.
In a halving event, the reward for mining new blocks is halved. The halving is scheduled to occur once every 210,000 blocks – and it typically takes around four years to mine that amount.
The purpose of the halving is to gradually reduce the rate of creation of new bitcoins, eventually capping the total supply at 21 million, as stipulated in the cryptocurrency's original whitepaper.
During Bitcoin's lifetime, there have been three previous halvings:
- In the first halving, in November 2012, the reward for each block mined decreased from 50 BTC to 25 BTC.
- In the second halving, in July 2016, the reward decreased again to 12.5 BTC.
- In May 2020, the reward was again halved, this time to 6.25 BTC per block.
Analysts expect the next halving event, where the reward will drop again to 3.125 BTC per block, to occur in April.
How will this affect the price of Bitcoin?
Halving is designed to maintain the scarcity of Bitcoin – simple market economics dictate that the asset's price will benefit from reduced supply.
Previous halvings have been no exception to this rule, with Bitcoin rising to new highs in the wake of each event. Last time, its price went from under $9,000 to nearly $60,000 in less than a year.
Some on Wall Street are not confident that the cryptocurrency will repeat this feat. JPMorgan warned last week that its price could fall to $42,000, or more than a third, this time due to higher production costs.
But perhaps the fact that the world's largest bank by market capitalization is interested in what was once a niche event in the cryptocurrency market is a sign of how far Bitcoin stocks have risen in recent years.
“More ETFs are on the way, increasingly institutionalizing the crypto asset class,” Deutsche Bank's Jim Reed said Thursday in a research note.
“Other things to watch are the fourth Bitcoin halving in April, where new coins available to miners are halved to maintain scarcity, as well as more clarity on upcoming regulation.”
“Whether you're a cynic or a convert, whether you think it's cheap or in a bubble, it's clear that bitcoin is becoming increasingly institutionalized,” Reed added.
