This week the bitcoin halving is about to take place. In broad terms, the halving of the reward for successfully mining a bitcoin block effectively reduces the supply of new bitcoins – and that presumably should lead to higher prices according to the scarcity principle. The fewer bitcoins that get mined, the more valuable bitcoin becomes. But what is this “halving” and why is it happening?
The halving is a process that is embedded in Bitcoin’s code. In addition, there is also a limited number of bitcoins that can ever exist, capped at 21 million. So far, roughly 19 million bitcoins have been created. And every time 210,000 formulas (or blocks) get solved, a halving occurs. Starting with January 3rd 2009, the mining process initially released 50 BTC per block as the mining reward, to a total of 10.5 million bitcoins or 50% of the total. Then, on November 28th, 2012 we had the first halving which decreased the reward to 25 bitcoins per block up to 5.25 million bitcoins. The second halving occurred in 2016, the third in 2020 and now we are waiting for the fourth, which is expected to happen sometime around April 19 or 20, although that date may vary as the exact moment when the 210,000th block will be resolved is difficult to pinpoint with precision.
The halving effectively increases the time it will take to reach that 21 million limit — and it also tends to increase bitcoin’s value. One bitcoin is made of 100 million of the smallest unit, commonly called a “satoshi”. The final subsidy of 1 satoshi per block will happen after 32 of these “halving” events take place.
So far, halving has offered a bullish scenario for crypto investors, due to the tightening in supply. In 2020, when the previous halving took place, the price surged from a low of $6740 one month before the halving to a high of $9900 in the week of the event itself. The price continued to rise over the course of the next year to reach a peak of $64600 at the beginning of April 2021. Despite the subsequent corrections, the prices never reached a lower value than before the halving. A similar pattern emerged surrounding the previous halvings in 2012 and 2016. We will see if history repeats itself or we are about to witness a different behavior this time. But with the pressure that newly approved Bitcoin ETF are applying on the market, facilitating access to investment for new categories of buyers, we might still be in a classic supply and demand squeeze scenario.
Crypto is a popular type of asset among Romanian individual investors. More than half of them (55%) have in their portfolios a form of crypto assets and 23% of them are looking to increase their positions this year, according to the latest eToro Retail Investor Beat survey. Moreover, Bitcoin is the most held crypto asset by global investors and the second most held crypto asset by Romanian investors on the eToro platform at the end of the first quarter of this year.
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