Bitcoin halvings: nine common questions, answered simply

Bitcoin halving explained: how does it work and when is the next one?

Reading about cryptocurrencies for the first time is an incredibly steep learning curve – and there’s one particular concept that often leaves newcomers scratching their heads: the Bitcoin halving. How does this phenomenon work, and what impact does it have on the cryptocurrency’s value? Buckle yourselves in for a comprehensive guide.

Whereas central banks are tasked with printing new money, cryptocurrencies like Bitcoin are decentralised. This means that miners are responsible for verifying transactions and adding them to the blockchain – a vast database that serves as a record of every payment that’s ever been made. Miners are rewarded for their hard work by receiving brand-new Bitcoin. However, given how this digital asset has a fixed supply of 21 million, the good times can’t last forever. As a result, these rewards are reduced by 50 per cent – once every four years.

When the Bitcoin blockchain launched in January 2009, a new block was being added to the network every 10 minutes or so. Every time this happened, a lucky miner would receive a reward of 50 BTC. This was worth pennies at the time – but fast forward to now, and that’s a cool $2.7 million. Back then, mining was really easy to do… so much so that a laptop had ample computing power to uncover some crypto. These days, discovering new Bitcoin is a much more laborious process that takes vast data centres. Eventually, this block reward got slashed to 25 BTC, then to 12.5 BTC, then to 6.25 BTC, and so on.

As we mentioned earlier, the Bitcoin halving takes place once every four years – or once every 210,000 blocks. The exact date and time can vary slightly. There have been three such events so far – here’s the timeline:

How often does Bitcoin halve

Given how one of Bitcoin’s biggest selling points is its fixed supply, the number of coins entering circulation needs to be tapered gradually. As you can see from the infographic above, Satoshi Nakamoto prioritised getting a high amount of BTC into circulation as soon as possible. The final Bitcoin is not expected to be mined until 2140, but already 89 per cent of all the BTC that will ever exist has been discovered. (And to make matters worse, estimates suggest that about 21 per cent of this 18.7 million is already lost forever.)

It’s difficult to know the precise date – but the latest estimates suggest that the next Bitcoin halving will happen some time in early April 2024 at a block height of 840,000.

Generally speaking, the past three halving events have contributed to a dramatic surge in Bitcoin’s price. However, it’s important to stress that this surge doesn’t normally happen straightaway – bullish spikes may only occur six to 18 months later.

Let’s take the most recent Bitcoin halving, which happened in May 2020, as an example. There had been a lot of excitement in the run-up to this event, but BTC’s value actually ended up remaining largely flat until October – about five months. From there, it took another six months for BTC’s price to rise sixfold – hitting highs of $64,683.10 at the time of writing.

Of course, what’s happened in the past is no indication of what lies ahead in the future. There’s no guarantee that Bitcoin will react the same way in 2024.

Halvings are seen as bullish milestones in the Bitcoin world – and form a crucial part of the four-year cycle that’s often seen around this cryptocurrency. After Bitcoin hit highs of $20,089 in December 2017, it lost 80 per cent of its value the following year, before beginning to appreciate once again in 2019 and 2020.

Depending on who you listen to, there are one of two outcomes that will now arise following the 2020 halving: prices will have reached a top, or they will continue to race higher by the end of 2021 – potentially breaking six figures. Data does suggest that the fourth quarters of both 2013 and 2017, which came after halvings, were among the best in the cryptocurrency’s history, delivering gains of 479 per cent and 168 per cent respectively. Are we going to see the same next time around? Only time will tell.

If you’re thinking it’s best to sit this one out and wait until the next Bitcoin halving in 2024, history suggests that we will see a bear market begin to form in 2022 or 2023. However, the dynamics of the market today are vastly different to past halvings – we have never seen the market cap this high, nor publicly listed companies such as MicroStrategy and Tesla gain exposure to the cryptocurrency at a cost of billions of dollars.

Sadly, unless you’re planning on becoming one of the world’s oldest people, it’s highly unlikely you’ll be around to witness what happens after all Bitcoins have been mined in 2140. It’ll be interesting to see whether the cryptocurrency manages to have staying power in this time – or whether it ends up falling by the wayside.

Once this milestone has been met, it essentially means that no new Bitcoin is left to discover. This will be especially bad news for miners, who won’t be rewarded with freshly minted crypto whenever they validate a block. Instead, they’ll have to take comfort in receiving the fees that have been generated by the transactions they have just approved.

There appears to be confidence that the elimination of block rewards won’t disincentivise miners, and figures suggest that revenues from transaction fees generate about 100 BTC for miners – that’s $5.5m at the time of writing. If the Bitcoin blockchain continues to be embraced by consumers and businesses alike, this figure could rise even further.

Trade Bitcoin to US Dollar – BTC/USD chart

Bitcoin to US Dollar
Daily change
36542.2
Low: 36121.5
High: 41363.1

FURTHER READING

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