Bitcoin halving, maybe this Friday! It's not just about the price impact

At a time when prices are weak, Bitcoin may experience its fourth "halving" in fifteen years this Friday. This event will be the most anticipated and influential headline news in the currency circle recently.

People unfamiliar with how the Bitcoin network operates may have some questions: What is "halving," when will it occur, why is it necessary, and what kind of impact might it have on the price of Bitcoin?

What is "halving"? Why is it necessary?

The so-called "halving" refers to the halving of the rewards miners receive through mining. Every time the Bitcoin blockchain generates 210,000 blocks, the Bitcoin block reward is halved.

Currently, miners who win in the mining competition receive a reward of 6.25 bitcoins, which will be reduced to 3.125 bitcoins after halving.

Bitcoin's creator, Satoshi Nakamoto, designed Bitcoin with a fixed supply to differentiate it from fiat currencies like the US dollar. According to the rules in the Bitcoin protocol code, the total supply of Bitcoin can only be 21 million. Bitcoin experts believe that the last Bitcoin is expected to be mined around the year 2140.

Whenever a miner successfully mines a new block, they receive a certain amount of Bitcoin rewards, which are intended to incentivize miners to provide computing power for the Bitcoin network.

Miners are like guardians of the Bitcoin network, not only competing for computing resources but also bearing the responsibility of maintaining the stable operation of the system. Every transaction needs to be verified and confirmed by miners. Only with the approval of enough miners can a transaction be permanently recorded on the blockchain.

In the early days of Bitcoin, miners could earn Bitcoin by running software nodes on laptops. However, as competition has become more intense, miners now need to use powerful computers and consume a large amount of energy to remain competitive.

One of the original intentions of Bitcoin's design is to become a deflationary asset, meaning its value will increase over time. Therefore, in order for Bitcoin to become a deflationary asset, the Bitcoin rewards for miners must decrease over time to limit the total supply of Bitcoin.

Matt Weller, Global Head of Research at FOREX.com and City Index, commented to MarketWatch:

The main purpose of "halving" is to control the Bitcoin supply and create a deflationary economic environment. By slowing down the production of new Bitcoins, assuming demand remains stable or increases, halving helps maintain scarcity and increase the value of cryptocurrencies.

When does "halving" occur?

Ali Dhanani, a technical partner at the law firm Baker Botts, stated that no one can say exactly when "halving" will occur, but it will happen after the completion of the 840,000th block in the Bitcoin blockchainAccording to data from blockchain.com, as of Monday evening, the Bitcoin blockchain has reached the 839,400th block (still increasing). Dhanani stated that if a block is mined on average every 10 minutes, this means that the "halving" will occur 4.3 days after Monday evening, which is Friday night or early Saturday morning Eastern Time.

Every 210,000 blocks mined, the reward for miners completing a block is "halved."

In the past, this has taken an average of about four years. The first halving occurred on November 26, 2012, the second on July 11, 2016, and the third on May 11, 2020.

Additionally, according to Weller's statistics, the previous halvings have all occurred a few months before the start of a Bitcoin bull market cycle.

How does the "halving" affect Bitcoin's price?

Based on historical experience, the immediate support of the Bitcoin price from halving is limited.

According to Weller, theoretically, the impact of the halving on the Bitcoin price may have already been reflected because the approximate date was known in advance.

However, a new situation has arisen this time—after Bitcoin reached a historical high, the halving has arrived faster than ever before. Analysts believe that this halving may be one of the drivers of the crypto market rally this year.

In addition, the Fed has hinted at a rate cut in 2024, and the launch of a Bitcoin spot ETF earlier this year has also influenced the trend of Bitcoin.

Bitcoin "halving," a challenge for miners?

Compared to the impact on Bitcoin's price, so far, the "halving" seems to have a greater impact on the stock prices of Bitcoin miners such as Marathon Digital.

Marathon Digital's stock price has fallen by over 36% since the beginning of the year, closing at $15.15 on Monday.

Other mining company stocks have also experienced sharp declines since the beginning of the year, including Riot Platforms, which has fallen by nearly 45% since 2024, closing at $8.57 on Monday.

This is understandable, as the "halving" directly affects one of the two main sources of income for miners, mining rewards (the other major source being transaction fees), however, miners' operating costs such as electricity and equipment expenses will not decrease due to the halvingThis means that if the price of Bitcoin and transaction fees do not increase significantly to offset the impact of the "halving" of rewards, many miners may face profitability challenges