Updated on April 20, 2024: Bitcoin Completes Halving
On the morning of April 20th, at 8:09 am, Bitcoin (BTC) successfully completed its fourth halving, reducing the future block rewards from 6.25 BTC to 3.125 BTC. Following the halving, the price of Bitcoin hovered around $63,900 and is currently fluctuating around $64,000 as of the time of writing.
According to the blockchain browser Mempool, the last block with a 6.25 BTC reward, which is the 839,999th block, was mined by SBI Crypto. The first block to receive the halved reward was mined by the ViaBTC mining pool.
The Halving: A Once-in-Four-Years Event! What is it?
Bitcoin (BTC) reached a historic all-time high of over $73,000 in March this year. The upcoming Bitcoin halving event in April is expected to have a profound impact on the value of Bitcoin, miners’ earnings, and the entire cryptocurrency market.
The Bitcoin halving refers to the reduction in the number of Bitcoins miners can receive as a reward approximately every four years. This rule is hardcoded into the Bitcoin code and cannot be changed. Its purpose is to effectively control the rate of new coin issuance and scarcity. This will be the fourth halving event to occur since Bitcoin’s inception.
When Bitcoin’s creator, Satoshi Nakamoto, published the Bitcoin whitepaper in 2008, he set the limit of Bitcoin at 21 million coins. Miners, who are responsible for validating transactions on the Bitcoin network, are rewarded with Bitcoin for completing their tasks. This process is called mining.
When the circulating supply of Bitcoin reaches 21 million coins, mining and halving will cease. Based on the current trend, this is projected to happen around the year 2140.
Due to the reduction in the influx of newly mined Bitcoins, the value of untouched Bitcoins increases, leading to a significant price surge in the six to eighteen months following each halving event. This creates a bullish trend in the cryptocurrency market.
Therefore, not only miners are affected by the halving, but investors also closely follow the aftermath of the Bitcoin halving.
How does the Bitcoin halving affect miners?
Since Bitcoin’s birth in 2009, there have been three previous halvings in 2012, 2016, and 2020. With the fourth halving in April, the mining reward for Bitcoin has decreased from the initial 50 BTC to 3.125 BTC.
Impact 1: Is mining no longer profitable? Two possible directions for miners’ survival
Bitcoin researcher Chen Bo-Wei pointed out that the halving is actually a significant blow to miners. In 2013, there were already papers suggesting that Bitcoin’s economic model would not be able to sustain future operations because the rewards for mining blocks were insufficient to cover the costs incurred by miners. As a result, the number of miners would decrease over time.
In this situation, Bitcoin’s future development could go in two directions. First, if Bitcoin continues to be widely adopted and more people start using it, transaction fees, which are an important source of income for miners, will increase. This would allow miners to continue operating even if mining becomes more challenging. The second possibility is that Bitcoin’s price could skyrocket due to its scarcity. If the price of Bitcoin doubles or even surpasses its previous value after the halving, mining could still be profitable for miners.
Impact 2: Application migration to Layer 2 to create a healthy blockchain environment
However, as more people enter the Bitcoin blockchain world, transaction fees will rise, and the speed of transactions will slow down due to the increased number of users. The emergence of Layer 2 solutions, which address the existing problems of blockchain, can enhance user experience. Therefore, Chen Bo-Wei believes that the final form of the Bitcoin blockchain will move towards a stable balance, with Bitcoin investments taking place on Layer 1 and applications shifting to Layer 2.
If Bitcoin continues to be widely adopted, transaction fees will increase. Even if mining becomes more challenging, miners will still be able to sustain their operations. When the Bitcoin Layer 2 ecosystem flourishes and attracts a large number of users, transaction fees on the Layer 1 network will significantly increase. At that point, stable support for miners will solely rely on transaction fees, creating a truly healthy blockchain environment where the halving event will no longer be an issue.
️Further reading:
The Birth of the First Global Cryptocurrency “Bitcoin” During the Financial Crisis
How much will the price rise after this halving?
For investors, the previous three halving events did drive Bitcoin to rise and enter a bull market. However, this time is slightly different.
The biggest change is the official approval of Bitcoin spot ETFs in the United States in early January this year. People can now directly purchase funds that track the price of Bitcoin on the stock exchange without the need for separate wallets in the Web3 world.
️Further reading:
Bitcoin Spot ETF Approved! After 11 Years of Waiting, Can Taiwan Buy? What Are the Fees? All Answers Here.
In the past, the cryptocurrency market often said, “The bull market starts after the halving.” Based on historical data, the bull market phase usually occurs within 14 to 18 months, and we are currently in the early stages of the bull market.
With the introduction of Bitcoin spot ETFs in the United States, more institutional money will flow in, and this type of funding is known for its slower response time.
Yang Yao-Yang, co-founder of Honglou Capital, stated that while Bitcoin ETFs establish the legal status of Bitcoin, they also bring in more “institutional money,” which tends to have a slower reaction time.
Yang Yao-Yang gave an example that if a major event occurs suddenly, ETF investors are less likely to buy or sell immediately compared to cryptocurrency investors. Therefore, extreme situations like a 50% surge or drop within a week may occur less frequently in the future because the ETF provides foundational support with its underlying funds.
Observation Indicator: How much money will Bitcoin ETFs bring?
How much money Bitcoin ETFs will bring is a crucial observation indicator for this halving.
During the bear market, Lin Hong-Yu, a cryptocurrency lawyer who insists on regularly buying Bitcoin, stated, “I am very optimistic about this market cycle, and it will experience price spikes just like the previous three halvings.”
️Further reading:
Bitcoin believers often view Bitcoin as a challenge to central institutions and traditional financial systems, and they have a certain level of confidence rather than just seeking short-term profits. However, general investors may focus more on the investment returns of Bitcoin.
In that case, the saying, “Investing involves gains and losses, so please consider your personal risk tolerance,” comes into play.
Proofreaders: Gao Jingyuan, Chen Junyi