It is essential to understand Bitcoin halving whether you are a crypto novice, a curious mind, or a seasoned investor. Let’s start with the basics. 

Every four years or so, the Bitcoin network undergoes a significant change called the “halving.” 

At its core, this event cuts the reward for mining Bitcoin transactions in half.

Initially set at 50 Bitcoins per block when the network was launched in 2009, the reward will drop to 3.125 Bitcoins after the next halving in April 2024.

All the way back, when Satoshi Nakamoto, Bitcoin’s creator, wanted to control Bitcoin’s supply, simulating the scarcity and value preservation seen in precious metals.

Let’s see & understand how Bitcoin itself works, and then we can appreciate why halving happens.

So, Bitcoin operates on a technology called blockchain, a decentralized ledger of all transactions across a network of computers.

These computers, or nodes, validate transactions through a process called mining, which involves solving complex mathematical puzzles. The miner who first solves the puzzle earns the right to add a new block of transactions to the blockchain and in return, receives a reward in Bitcoins.

Every 10 minutes, the Bitcoin mining algorithm finds a new block. Some blocks take more than 10 minutes; there are some that take less. Depending on your method, this can shorten or lengthen the process of achieving the next halving goal. 

Bitcoin halving occurs after every 210,000 blocks are mined, which is roughly every four years, (given that each block takes around 10 minutes)

The process of mining ensures the security and integrity of Bitcoin transactions. Each block builds upon the last, creating a secure and immutable chain. However, mining isn’t just about creating new blocks; it’s also how new Bitcoins are introduced into the system.

How does halving help us?

Does it really prevent inflation?

The halving is not only a technical event. It’s also a significant economic adjustment. It reduces the reward for mining and limits the supply of new Bitcoins. This is not done properly for traditional currencies and we all know the result.

They print money at will, and it leads to more and more inflation.

But Bitcoin has a fixed supply cap of 21 million coins, which means no more can ever be created after that. There is a LIMIT! We’ll probably reach this cap around 2140, and after that, miners will be compensated solely through transaction fees. 

The halving events are critical milestones towards this cap, each one making Bitcoin slightly more scarce than before.

Why do you think people are so bullish about halving? 

Historically, each halving has led to an increase in Bitcoin prices, driven by a mix of reduced supply and increased demand, especially as the event draws more media attention and new investors to the market. 

Past halvings in 2012, 2016, and 2020 have been followed by substantial price increases, although these gains have varied in size and duration.

The bitcoin price increased about 93x, 30x, and 8x from its halving day price to its cycle top following the halvings of 2012, 2016, and 2020, respectively.

However, it’s essential to recognize that past performance is not indicative of future results. Each cycle has its unique context, influenced by broader economic conditions, regulatory developments, and technological advancements.

Different experts have different views on how halving will impact Bitcoin.

I see a unique feature of this halving is that bitcoin has already surpassed its previous high before the halving event, which makes forecasting the length and intensity of the cycle more difficult. 

However, according to a recent Bybit report, exchanges might run out of Bitcoin in the next nine months due to demand and scarcity of Bitcoin.

This could drive the prices of Bitcoin higher. Some analysts like Morgan Stanley think that Bitcoin might surpass $120,000 after halving this year in early 2025.

However, they may not have considered the ongoing geopolitical tensions and no rate cuts in the US, which could scare away investors from high-risk assets.

Maybe we have already seen the pricing happening, even before the event. Maybe this wouldn’t create as much increase, who knows? It’s important to stay loyal to your strategy and not react, only observe and then plan accordingly, while staying true to your colors.

Let us know if you think otherwise, or better yet, if you agree!