Bitcoin halving 2024: what to know

A bitcoin halving (sometimes ‘halvening’) is an event where the reward for mining new blocks is halved, meaning miners receive 50% fewer bitcoins for verifying transactions. Bitcoin halvings are scheduled to occur once every 210,000 blocks – roughly every four years – until the maximum supply of 21 million bitcoins has been generated by the network.

Bitcoin halvings are important events for traders because they reduce the number of new bitcoins being generated by the network. This limits the supply of new coins, so prices could rise if demand remains strong.

While this has happened in the months before and after previous halvings – causing bitcoin’s price to appreciate rapidly – the circumstances surrounding each halving are different and demand for bitcoin can fluctuate significantly.

Bitcoin last underwent a halving event on 11 May 2020 – where rewards for mining became 50% lower, falling from 12.5 new bitcoin per block to 6.25 bitcoin. The tightening supply provided a bullish scenario for the asset where the coin's price surged from $6877.62 on 11 April (a month before the halving) to $8821 at the time of the event itself. Despite significant volatility, the price continued to rise over the course of the next year to reach $49504 on 11 May 2021.

A similar pattern emerged surrounding the previous halvings in 2012 and 2016 where the strongest period of upside came post halving and then, despite a significant drop in value around 12-17 months later, the price remained much higher than it was prior to the halving.

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It is not yet clear how the next halving will impact bitcoin’s price. Many commentators believe that the price will follow a similar pattern to the previous three halvings, rising after the event itself as the supply of new coins in constrained.

However, any price rise will depend on how demand for bitcoins shapes up over the course of the halving. Demand is by no means certain to increase – or even remain static – as the market has matured significantly since the last halving in 2020, and there are now many more well-established cryptocurrencies competing for users.

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A bitcoin halving works because of the network’s underlying blockchain software, which dictates the rate at which new bitcoins are created. The software requires computers in the network to compete to verify transactions – through a process known as ‘mining’ – and rewards them with a number of new bitcoins when they can prove that the transactions they have selected are valid. Transactions are verified in groups called ‘blocks’ and the network is coded to halve the reward received by miners every 210,000 blocks.

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Bitcoin halves due to the design of its software, which was created by a mysterious person or group using the assumed pseudonym ‘Satoshi Nakamoto’.

While Satoshi hasn’t explicitly explained the reasons behind halvings, many have speculated that the system was designed to distribute coins more quickly at the beginning to incentivise people to join the network and mine new blocks. Under this theory, block rewards were programmed to halve at regular intervals because the value of each coin rewarded was deemed likely to increase as the network expanded.

Another theory is that the halvings were put in place to introduce deflationary measures into the coin, so the number of new coins rewarded per block is pre-determined. Unlike the fiat monetary system where overprinting by central banks can result in sustained reduction in the value of the currency, the fixed total supply of bitcoin available and the pre-determined rate of printing new bitcoins hedges against this risk.

One criticism of bitcoin’s design – including halvings and the finite supply of 21 million coins – is that it encourages users to save rather than spend in the hopes that coins will increase in value over time. This may have fuelled boom and bust cycles in the past, with users hoarding coins only to cash out at key levels.

Some have also compared bitcoin to a pyramid (Ponzi) scheme for similar reasons, arguing that the system’s design has disproportionately rewarded users who got in early.