NEW YORK (AP) — In the next few days or hours, the “miners” who chisel bitcoins out of complex math are going to take a 50% pay cut — cutting new production of the world's biggest cryptocurrency in half.
This could have a lot of implications, from asset prices to Bitcoin miners. And, like everything in the volatile cryptoverse, the future is hard to predict.
Here's what you need to know.
What is Bitcoin Halving and Why Does it Matter?
Bitcoin “halving” is a pre-planned event that occurs approximately every four years, affecting the production of Bitcoin. Miners use farms of quiet, specialized computers to solve convoluted mathematical puzzles; When they complete one, they are rewarded with a certain number of bitcoins.
Grinding does exactly what it sounds like – it cuts fixed income in half. As the mining reward decreases, so does the number of new bitcoins entering the market. This means that the supply of coins available to meet demand will grow slowly.
Limited supply is one of the key features of Bitcoin. Only 21 million bitcoins will ever exist, and more than 19.5 million of those have already been mined, and less than 1.5 million remain.
As long as demand stays the same or climbs faster than supply, Bitcoin prices should halve production. Because of this, some argue that Bitcoin can resist inflation – however, experts stress that future gains are not guaranteed.
How often is it halved?
Each bitcoin's token is halved during the mining process after every 210,000 “blocks” are created – where transactions are recorded.
No calendar dates are set in stone, but it is divided roughly every four years. The latest estimates expect the next half to occur late Friday or early Saturday.
Will Bitcoin Halve?
Only time will tell. Following each of the previous three stocks, Bitcoin's price was mixed in the first few months and rose significantly a year later. But as investors know well, past performance is no indicator of future results.
“I'm not sure how significant the halving is,” said Adam Morgan McCarthy, a research analyst at Kyco. “A sample size of three (previous quarters) is not big enough to say, 'It's going to go up 500% again' or something.”
For example, at the time of the last halving in May 2020, the price of bitcoin was around $8,602, according to CoinMarketCap – and by May 2021 had risen nearly sevenfold to nearly $56,705. Since July 2016, the price of Bitcoin has almost quadrupled. Bitcoin's first half in November 2012 is up almost 80 times in a year. Experts like McCarthy insist that other market conditions contributed to those returns.
This next half also comes after a year of steep gains for Bitcoin. As of Thursday afternoon, bitcoin was trading at $63,500 per CoinMarketCap. That's down from last month's all-time high of $73,750.
Much of bitcoin's recent rally is credited to the early success of a new way to invest in the asset — spot bitcoin ETFs, which were only approved by US regulators in January. A research report by crypto fund manager Bitwise found that these spot ETFs saw inflows of $12.1 billion in the first quarter.
Bitwise Senior Crypto Research Analyst Ryan Rasmussen said continued or growing ETF demand, combined with a “supply shock” as a result of the upcoming halving, could further propel bitcoin's price.
“We expect the price of bitcoin to have a strong performance over the next 12 months,” he said. Rasmussen notes that some predicted gains as high as $400,000, but the “consensus estimate” is closer to the $100,000-$175,000 range.
Other experts urge caution, pointing to the possibility that gains have already been realized.
In a Wednesday research note, JPMorgan analysts said they do not expect to see a second-half price rally because the event is “already priced in” — noting that the market is still overbought, according to their analysis of bitcoin futures.
What about miners?
Miners, meanwhile, will be challenged to reduce operating costs while compensating for reduced rewards.
“Even if there is a slight increase in the price of bitcoin, (a halving) will really affect a miner's ability to pay their bills,” said Andrew W., a Miami-based attorney who specializes in digital assets at Holland & Knight. Balthasar said. “You can't assume Bitcoin is going to go to the moon. With your business model, you have to plan for extreme volatility.
Better-prepared miners could have laid the groundwork ahead of time, perhaps by increasing energy efficiency or raising new capital. But underperforming, struggling companies can crack.
One possible outcome: consolidation. This has become more common in the Bitcoin mining industry, especially following a major crypto crash in 2022.
In its latest research report, BitWise found that total miner earnings fell after the previous three quarters. But those figures have rebounded significantly after a full year — thanks to bitcoin's rising price and large miners expanding their operations.
Time will tell how mining companies fare following this next looming halving. But Rasmussen is betting that the industry will continue to use technological advances to expand and make operations more efficient.
What about the environment?
It is still questionable to point to concrete data on the environmental impacts directly linked to Bitcoin halving. But crypto mining is no secret Consumes a lot of energy – and operations that rely on polluting sources have attracted particular concern over the years.
Recent research published by the United Nations University and the Future of the Earth journal found that the 2020-2021 carbon footprint of Bitcoin mining in 76 countries is equivalent to burning 84 billion pounds of coal or running 190 natural gas-fired power plants. Coal accounted for most of Bitcoin's electricity needs (45%), followed by natural gas (21%) and hydropower (16%).
The environmental impacts of Bitcoin mining often reduce the energy source used. Industry analysts maintain that the drive to use more clean energy has increased in recent years as calls for climate protection from regulators around the world have increased.
However, production pressures may cause miners to switch to cheaper, less climate-friendly energy sources. And looking toward the halving, JP Morgan warned that some bitcoin mining companies may also “diversify into low-energy cost areas” to deploy inefficient mining equipment.
