Bitcoin’s latest “halving” — the fourth in the cryptocurrency’s history — is now complete. And while the token’s prices are off their highs from earlier in the day, there doesn’t seem to be much of a reaction — at least, not yet.
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BTCUSD,
was trading at north of $63,000 roughly 30 minutes after the halving, which officially took place following the mining of the 840,000th block in the Bitcoin blockchain. It took effect shortly after 8 p.m. Eastern time.
But what is the halving, and why is it important? The fourth halving is especially notable since roughly 95% of all bitcoins that will ever be in circulation have already been mined.
Fortunately, while the reward miners receive for successfully completing a block has dropped to 3.125 from 6.25 bitcoins, they continue to receive additional income from transaction fees.
Bitcoins are divisible into smaller units, with the smallest being a “Satoshi,” or one-hundred-millionth of a bitcoin.
What was the halving?
Bitcoin was designed by its creator, the mysterious Satoshi Nakamoto, to have a fixed supply, differentiating it with fiat currencies like the U.S. dollar.
To achieve this, Nakamoto — believed to be a pseudonym used by a creator or group of creators who developed the cryptocurrency — built a requirement into bitcoin’s code that over time reduces the amount of new tokens miners receive as a reward for each block of the Bitcoin blockchain they complete. The reward is reduced by half every 210,000 blocks — roughly every four years.
Once every bitcoin has been mined — which should occur around the year 2140, experts say — miners will only receive transaction fees to compensate them for their efforts. According to the rules set out in the Bitcoin protocol’s code, only 21 million bitcoins will ever exist.
Why is it necessary?
Bitcoin miners power the Bitcoin network by racing against one another to solve complex cryptographic puzzles. In doing so, they provide the computing power that enables every node running the Bitcoin software to validate each transaction by consensus. This ensures the security of the blockchain and the integrity of its transaction record.
Every time a miner succeeds in mining a new block of the Bitcoin blockchain, they are rewarded with a set number of tokens. These awards were devised as an incentive to encourage users to power the distributed network.
In the early days of bitcoin, miners could earn tokens by simply running a software node on their laptops. But as competition has grown more intense, miners must now employ powerful computers that require large amounts of energy to remain competitive.
And in order to fulfill bitcoin’s promise as a deflationary asset, the rewards that miners receive must decrease over time to limit the cryptocurrency’s supply.
“The primary purpose of halving is to control bitcoin’s supply, creating a deflationary economic environment,” said Matt Weller, global head of research at FOREX.com and City Index, in commentary emailed to MarketWatch. “By slowing the rate at which new bitcoins are created, halving helps to maintain scarcity and potentially increase the cryptocurrency’s value, assuming demand remains steady or increases.”
The first halving took place on Nov. 26, 2012; the second occurred on July 11, 2016; and the third happened on May 11, 2020.
How might it impact the price of bitcoin?
In the past, the halving’s impact on the price of bitcoin has been muted, at least initially. But as Weller illustrates in the chart below, previous halvings have preceded the start of a fresh bitcoin boom by a few months.
STONE X
This time around, however, he expects that the impact of the halving was likely incorporated into bitcoin’s price well in advance, given how much the cryptocurrency has already risen in 2024.
The fact that bitcoin recently traded at a record high represents an interesting wrinkle. Never has a bitcoin halving followed so soon after a record high. Some believe the event has played a role in the crypto’s rally in 2024.
Other reasons typically cited for bitcoin’s jump since the start of the year include the Federal Reserve teasing interest-rate cuts in 2024, and the introduction earlier this year of 11 exchange-traded funds that can buy and hold bitcoin directly. Previously, bitcoin ETFs were limited to trading futures contracts pegged to the cryptocurrency.
Spot bitcoin ETFs now have nearly $60 billion in assets, according to FactSet, including $22 billion in the Grayscale Bitcoin Trust
GBTC,
which recently converted to an ETF from a closed-end fund.
Despite the influx of money into these ETFs, the cryptocurrency has actually fallen over the past month. It was trading at around $63,000 late Friday, down from a high around $73,700 in mid-March — a roughly 14% drop, according to FactSet data.
The halving appeared to have a more immediate impact on shares of miners, which were up sharply during Friday’s trading on Wall Street.
Marathon Digital Holdings Inc.
MARA,
was up nearly 10% on Friday to $16.50, and tacked on another 1.5% in after-hours trading, according to FactSet data. Fellow miner Riot Platforms Inc.
RIOT,
gained more than 10%, to $9.13 a share, and climbed another 2% after hours.
