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Home / Business / Personal Finance

The Bitcoin halving is imminent and here’s why you should be paying attention - Ben Rose

NZ Herald
17 Apr, 2024 02:00 AM4 mins to read

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      Ark Invest CIO Cathie Wood believes Bitcoin will one day be a US$20 trillion asset. In this interview she explains how ETFs and the halving event are boosting Bitcoin’s price expectations. Video / Carson Bluck
      Opinion

      EXPLAINER

      Bitcoin has been making headlines lately thanks to the introduction of Bitcoin ETFs in the US, record high pricing and the upcoming Bitcoin halving. For those uninitiated in the world of cryptocurrency, you may be wondering what the Bitcoin halving is and why you should care.

      What on earth is the Bitcoin halving?

      To make things simple, imagine Bitcoin as a digital gold mine where new coins are methodically being dug up by miners.

      After the Bitcoin halving, the amount of Bitcoin excavated is cut in half. Miners currently receive 6.25 Bitcoin if they are the first to verify a block of transactions and add it to the blockchain, and following the halving this will drop to 3.125 Bitcoin. This process repeats itself after every 210,000 blocks that are added to the chain - meaning the subsequent halving anticipated approximately 4 years later will yield only 1.5625 Bitcoin. This might sound harsh, but it’s actually a deliberate move coded into the Bitcoin system.

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      By halving the rewards, mining becomes less profitable and in turn, slows the production of new Bitcoin. It’s all about keeping Bitcoin scarce. Just like gold, if there’s less of it, each piece becomes more precious.

      Read More

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      Unlike fiat currency, the total supply of Bitcoin is fixed and immutable, there will only ever be 21 million Bitcoin. The combination of a capped supply with the precoded halving means Bitcoin not only emulates the scarcity of precious assets like gold, but its scarcity actually increases over time irrespective of demand. The halving event is a deliberate mechanism designed to slow supply growth of Bitcoin, further reinforcing its scarcity and hypothetically resulting in increased buying power over time.

      The halving happens roughly every four years, but if we really wanted to break it down, blocks take an average of 9.66 minutes to mine, which would take about 1409 days to mine the 210,000 blocks. So in real time, that means the fourth Bitcoin halving is likely due later this month.

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      Bitcoin bull run

      Historically, each halving event has corresponded with notable Bitcoin price surges and the year following a halving has typically been associated with bull market conditions. Couple this with the significant institutional investment the market has seen in early 2023 and a record-breaking price prior to the halving and you have an event highly anticipated by not only those in the crypto space but by many investors.

      Inflation hedge

      When I was first introduced to the world of cryptocurrency, one of the things that caught my attention was how it differed from traditional fiat currencies and one of the key differences Bitcoin offers is as a potential inflation hedge.

      Bitcoin’s supply inflation rate is set to halve again at the next Bitcoin halving - a stark contrast to the recent years of rampant fiat currency inflation globally (and right here in New Zealand) where successive years of money printing have seen the purchasing strength of the New Zealand dollar drop by more than 19 per cent (source) according to some since 2018. This has made Bitcoin a poster boy for critics of quantitative easing.

      For institutional investors, they are increasingly recognising Bitcoin as an emerging asset class for diversification. Given the volatility of Bitcoin, there are undeniably speculators hoping for short-term gains - and it is important that retail investors recognise the risk.

      What is also undeniable, is that Bitcoin continues to capture headlines here and around the world - and I’m willing to attribute it to the innovative halving algorithm and capped supply. For now, you will probably continue to hear the crypto-heads yap on about the fluctuating price of Bitcoin as they try and predict market movements to get ahead of the trends. I am also accepting of that.

      Finally, while everything I’ve laid out is a well-documented synopsis of how Bitcoin operates and the movements around previous halving events, none of this is financial advice. Bitcoin’s price, although upward in trajectory, is volatile and past results (you know where this is going) do not guarantee future performance.

      - Ben Rose is the Binance General Manager for Australia and New Zealand


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