The price of bitcoin (BTC) could significantly change when the second Bitcoin halving takes place in April 2024. Learn about the approaching bitcoin halving, covering what that is, why it’s occurring, and how to trade it.
What is a Bitcoin Halving?
Miners are compensated with 50% less bitcoins in exchange for confirming transactions when the incentive for mining new blocks is “halved,” or cut in half. Bitcoins will be divided in half every 210,000 blocks, or approximately every four years, up until the network has produced a total of 21 million BTCs.
Since they reduce the number of new bitcoins being created by the network, bitcoin halvings are significant occurrences for traders. Because of the limited supply of fresh coins, prices may increase if demand is persistently high. While this has already occurred in the months before and after other halvings, driving up the price of bitcoin, each halving has its own unique set of conditions, and demand for bitcoin can change drastically.
How does a bitcoin halving work?
The blockchain software that powers the network and controls how many new bitcoins are created allows for a successful bitcoin halving. The programme incentivizes network computers to compete for transaction verification through a process known as “mine” by rewarding them with a range of new bitcoins when they can prove the transactions they have selected are valid. Blocks are used to collectively verify transactions, and after 210,000 blocks, the network is set up to lower the incentive paid to miners.
What causes bitcoin to halve?
Bitcoin’s software, which was developed by an unidentified individual or group using the presumed pseudonym “Satoshi Nakamoto,” halves as a result of the way it was designed. The system was built to distribute currencies more quickly, in the beginning, to entice others to join the network and mine new blocks, according to popular belief. Satoshi hasn’t directly stated the reasons for halves, though many have made assumptions about them. According to this concept, block rewards were set up to reduce in value by half on a regular basis because it was anticipated that as the network grew, the value of each coin awarded would rise.
The restricted amount of 21 million coins and periodic halvings of the currency supply have drawn criticism for encouraging users to save rather than spend in the belief that their coins will appreciate in value over time. With consumers storing coins only to cash out at critical levels in the past, this may have fuelled boom and bust cycles. Some people have also linked bitcoin to a Ponzi scheme for similar reasons, asserting that the design of the system unjustly favoured those who made investments early.
How to trade bitcoin halving
The halving of bitcoin can be traded using one of two methods. The price of the cryptocurrency can be predicted using derivatives like CFDs, or you can utilise an exchange to buy the coins outright.
The fact that you don’t acquire ownership of the underlying coins while trading cryptocurrencies with derivatives like CFDs is one of the key advantages. This allows you to do the following:
Trade without an exchange account or wallet: Please be aware that when trading without a wallet or exchange account, you do not actually own or have any stake in the underlying asset.
Go long or short: Whether you anticipate bitcoin’s value to increase or decrease, you can place a bet on it.
Take advantage of leverage: To acquire access to much greater market exposure, you can open a position by making a deposit, or margin. By using leverage, you can significantly increase your exposure to a financial market while only investing a small portion of your capital. Leverage increases the potential for both gains and losses in this way.
What happened the last time bitcoin halved?
The last time bitcoin incentives decreased was on July 9, 2016, at the time of the second halving, when the block reward dropped from 25 new bitcoin per block to 12.5 bitcoin. The price of bitcoin increased from $576 on June 9, 2016, one month prior to the halving, to $650 on June 9, 2016, the actual day of the event. Despite the considerable fluctuation, prices increased during the course of the following year, reaching $2526 on July 9, 2017.
Similar patterns started to emerge on November 28, 2012, when the bitcoin block reward was reduced from 50 to 25 new bitcoins. Prior to the price halves, prices were $11 per month. They increased to $12 on the day of the occasion. Throughout the course of the following year, prices escalated further until they reached $1038 on November 28, 2013.
What potential effects could the price of BTC have from the Bitcoin halving?
It is unknown how the subsequent halving will impact the price of bitcoin. Several analysts believe that the price will increase both before and after the event because of increased media attention and because the quantity of new coins is limited, in line with the two previous halvings.
Any price increase, though, will be based on how the market for bitcoins evolves during the halving. Demand is by no means certain to increase or even remain stable given how much the market has changed since the last halving in 2016. Also, there are now other alternative cryptocurrencies lying for users.
Also read: Crypto Trading Bots: Are They Reliable?