What is the Bitcoin halving event and why does it affect cryptocurrency prices?

Every four years, the cryptocurrency experiences a market bubble fueled by the Bitcoin “halving” event. But what is this event and why is it important?

People who invest (and speculate in) cryptocurrencies base their investment strategy on one event: the Bitcoin Halving cycle (sometimes gleefully referred to as “halvingBitcoin uses a proof-of-work (PoW) cryptocurrency mining protocol to achieve network-wide consensus while protecting it against attacks and rogue actors.

This system protects the history of the blockchain from being tampered with by making it physically and economically impractical to do so, but also incurs huge energy costs. To offset energy costs, participants are rewarded with new BTC after each new block is produced. While Bitcoin is criticized for being an energy consumer, much of its energy comes from green energy crypto mining, as renewable energy is often cheaper and more profitable.


Related: How a Hardware Crypto Wallet Protects Against Hackers

When Satoshi Nakamoto created the Bitcoin PoW consensus mechanism, they created a single monetary policy that would be the opposite of fiat currencies like the US dollar. While dollars can be created infinitely and at will, BTC can only be created according to its PoW algorithm and follows a strict inflation schedule that is unlikely to change. What Investopedia explains, BTC’s inflation rate predictably falls by 50 percent every four years (specifically, every 210,000 blocks), and this process will continue until the year 2140, when the last satoshi (the smallest unit of a bitcoin) is mined. What happens after the last bitcoin is mined is still a matter of debate, although the most common theory assumes that miners will rely on transaction fees. The next halving event will occur around March 21, 2024, according to the Bitcoin halving clock.

Why does this create bubbles in the cryptocurrency market?

When a halving event occurs, it also halves the Bitcoin miners’ earnings. When miners get fewer bitcoins from mining, they have to charge each bitcoin at a higher price or sell bitcoins from their reserves to remain profitable. Meanwhile, the supply of new bitcoins sold by miners also decreases as the price rises, allowing buying pressure from investors/traders to have a stronger effect on the price of BTC.

So far, each halving event has sent BTC on a two-year price rally, which trickles down to other cryptocurrencies and sparks the speculation bubbles that cryptocurrencies are famous and notorious for. Cryptocurrency speculation bubbles primarily stem from crypto traders converting their BTC profits into smaller ‘altcoins’ and then selling them as hype-driven retail traders pile into the altcoins and rise. prices. Retailers are also much more likely to practice “HODL“strategy instead of taking profit, often taking loss as experienced crypto traders choose to take profit instead.

Bitcoin’s monetary policy ensures that its total supply will peak at just under 21 million BTC by the year 2140, which is guaranteed by its four-year halving cycle. As blockchain technology matures and cryptocurrencies become regulated assets, it is likely that speculation on cryptocurrencies will also mature and eventually the Bitcoin The halving event will not induce the same impact on the market that it has had for the last 10 years.

Next: How Ethereum’s Proof-of-Stake Transition Reduced Carbon Emissions by 99.95%

Source: Investopedia, Bitcoin Halving Clock

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