What Is Bitcoin Halving?
Quick halving facts:
Bitcoin halving occurs every four years. The first bitcoin halving happened in November 2012, and the second one some 4 years later, in July 2016. The third bitcoin halving was in May 2020, and on block 630,000, the block reward was decreased from 12.5 BTC to 6.25 BTC. This meant that miners got rewarded twice less than they were used to in BTC terms.
Inception → 1st halving = 7,852 BTC added daily
1st halving → 2nd halving = 3,980 BTC added daily
2nd halving → 3rd halving = 1,872 BTC added daily
3rd halving → 4th halving = ~936 BTC added daily
Bitcoin’s inflation rate ranged from 4.3% in July 2016 to 3.8% as supply grew. After the halving, the inflation rate will drop to less than 2%. Ethereum’s inflation rate, in comparison, is currently about 4.5%, which means that Bitcoin’s inflation rate will be more than twice lower after the halving. The lower inflation rate should theoretically decrease the selling pressure from the miners.
What Is Bitcoin Halving and When Will It Happen Again?
Around April 2024, the next bitcoin halving event will occur, reducing the bitcoin reward from 6.25 BTC to 3.125 BTC per block.
How Does Bitcoin Halving Affect Miners?
Daily, miners currently generate $13.4 million a day. If the current prices stay relatively similar until the halving, miners will only make $6.7 million after the halving. That would be the lowest daily amount miners have made since March 2019. Unless the price significantly increases, this will likely make most inefficient miners unprofitable, and the hash rate will drop. Essentially, bitcoins next halving will really put pressure on the whole bitcoin mining industry.
Will Bitcoin rally in 2023?
After suffering massive losses for most of the past year, bitcoins are now rallying in 2023, prompting speculation about the end of cryptocurrencies’ “crypto winter.”
How Are Bitcoin Miners Reacting To the Bitcoin Halving?
Bitcoin miners are constantly pressured when the halving happens, which puts more financial burden on their operations. Miners will be spending the same amount of resources to be rewarded half the amount of bitcoin they are currently earning.
Considering many long-term holders haven’t shown signs of being willing to let go of their coins, this reduction in newly created bitcoin makes the asset even more scarce.
Bitcoin’s hash rate is unlikely to be affected as much because miners won’t have other profitable ASIC chains to switch to. We estimate that we will likely see at least a 15% drop in the hash rate but likely not more than 30%.
Even if there were a 30% hash rate drop, that would put the current hash rate of 109M TH/s to about 76M TH/s, which would still be higher than the lowest bitcoin hashrate minimums.
What is the pressure on Bitcoin mining?
The pressure on the bitcoin mining industry likely isn’t letting up anytime soon as the competition only heats up for the continued decline in annual bitcoin issuance. We’re likely to see more mining fallout in 2023 for many reasons, but the bigger story is the increased network hash rate over time, as discussed above. The network hash rate has yet to see a year of negative growth in Bitcoin’s entire existence.
We expect more of these companies to face challenging conditions because of the skyrocketing global energy prices and interest rates mentioned above.
Core Scientific and Compute North has filed for Chapter 11 bankruptcy, with Argo Blockchain close behind.
Additional companies will likely declare bankruptcy, losing their market share to more profitable companies but destabilizing the industry.
What if a significant number of miners abruptly dropped out of the race?
This starts a death spiral that puts more pressure on the bitcoin mining operations and the bitcoin network as a whole.
Because the hash rate increased while the bitcoin price decreased, miner revenue took a beating this year after a euphoric rise in 2021.
Public miner stock valuations followed the same path, with valuations falling even more than the bitcoin price, all while the Bitcoin network’s hash rate continued to rise. This price-collapsing dynamic with the increasing hash rate has pummeled bitcoin miners’ hash price and total miner revenue per terahash and squeezed miner profit margins after a golden era of mining in 2021.
Public miner valuations collapsed, with most losing 90% or more equity valuations this year. Bitcoin Miner revenue in USD terms was down 44% in 2022 after rising 234% in 2021. In BTC terms, revenue was down 6.7% as of February 5th.
Bitcoin Halving Dates: Next Bitcoin Halvings
Approximately April 2024.
What happens with ASICs and Bitcoin mining difficulty?
While the multitude of harmful crypto industries and worrying macroeconomic factors have significantly dampened bitcoin’s price, the metrics of the Bitcoin network itself tell another story.
The hash rate and mining difficulty show how many ASICs are dedicating hashing power to the network and how competitive it is to mine bitcoin. These numbers move in tandem, and both almost exclusively went up in 2022, despite the significant price drop.
Does Halving Affect the Bitcoin Price?
Absolutely! One can argue that since it is a well-known public event happening every 210,000 blocks, it is well-priced. Still, every halving event shows us a significant uptick in the bitcoin price movements before the halving event.
What are the opportunities in Bitcoin prices?
It can be helpful to evaluate the growth in bitcoin’s realized price as a gauge of its actual capital inflows and outflows. As shown below, given the macroeconomic environment and deteriorating global liquidity conditions, bitcoin’s realized price/market cap saw relative outflows over the year, with the bitcoin realized price now below $20,000.
Relative to its history, bitcoin is at the phase of the cycle where it’s about as cheap as it gets. Its current market exchange rate is approximately 20% lower than its average cost basis on-chain, which has only happened at or near the local bottom of bitcoin market cycles.
Current bitcoin prices are in rare territory for investors looking to get in at a low exchange rate. Historically, purchasing bitcoin during these times has brought tremendous returns in the long term. That said, readers should consider that 2023 likely brings about bitcoin’s first experience with a prolonged economic recession.
What Happens When There Are No More Bitcoins Left?
When the bitcoin block reward is effectively gone after the last bitcoin halving event, the only incentive for miners to keep operating on the network will be the BTC network fees.
Does Bitcoin Halving Affect The General Crypto Market?
Yes, the bitcoin halving positively affects the overall crypto market as BTC is typically the main driver toward bull runs. Bitcoin price movement is a wildly anticipated event and typically triggers Ethereum and other cryptocurrency’s price appreciation events.