Bitcoin “halving” occurs approximately every 4 years (typical)
London:
Bitcoin, the world's largest cryptocurrency, completed its “halving'' on Friday, a phenomenon that occurs approximately every four years, according to cryptocurrency data analysis firm CoinGecko.
Bitcoin was fairly stable in the immediate aftermath, dropping 0.47% to $63,747. The halving occurred after Bitcoin hit an all-time high of $73,803.25 in March.
But what exactly is halving, and does it really matter?
What is Bitcoin halving?
Bitcoin halving, which occurs approximately every four years, is a change in Bitcoin's underlying blockchain technology designed to reduce the rate at which new Bitcoins are created.
Bitcoin was designed from the beginning by its pseudonymous creator Satoshi Nakamoto to have a supply cap of 21 million tokens.
Nakamoto wrote a halving into Bitcoin's code, which works by reducing the rate at which new Bitcoins come into circulation.
Approximately 19 million tokens have been released so far.
How does Bitcoin halving occur?
Blockchain technology involves the creation of records of information called “blocks.” Blocks are added to the chain in a process called “mining.”
Miners use their computing power to solve complex mathematical puzzles, build blockchains, and earn rewards in the form of new Bitcoins.
Blockchains are designed to halve approximately every four years, with each 210,000 blocks added to the chain.
During a halving, the amount of Bitcoin available to reward miners is cut in half. This reduces the profitability of mining and slows down the production of new Bitcoins.
What does the halving have to do with the price of Bitcoin?
Some Bitcoin enthusiasts say that Bitcoin's scarcity gives it value.
All else being equal, the lower the supply of a good, the more people are willing to buy, and the price should rise. They argue that Bitcoin is no exception.
Others dispute this logic, pointing out that any impact would already be priced in.
The supply of Bitcoin to the market also relies primarily on crypto miners, but the sector is uncertain due to a lack of data on inventory and supply. If mining companies sell reserves, that could put downward pressure on prices.
Bitcoin prices have remained below $64,000 since hitting an all-time high last month.
It is also difficult to unravel the reasons for the rise in cryptocurrencies, especially since there is much less transparency compared to other markets.
The most common reasons for this year's surge are the U.S. Securities and Exchange Commission's approval of a Bitcoin ETF in January and expectations that central banks will cut interest rates.
However, in the speculative world of crypto trading, explanations for price movements can snowball into market narratives that become self-fulfilling.
What about the previous Bitcoin halving?
There is no evidence to suggest that previous halvings were behind Bitcoin's subsequent price rise.
Still, traders and miners have studied past halvings to gain an edge.
When the last halving occurred on May 11, 2020, the price rose about 12% in the following week and rose 659% in the subsequent 12 months.
But there are many explanations for the rally, including easy monetary policy and cash-rich stay-at-home retail investors, and there was no real evidence that the halving was behind it.
The previous halving occurred in July 2016. Bitcoin rose about 1.3% the following week, but then plunged a few weeks later before rebounding.
This means it's difficult to determine what effects half-lives have had before, or to predict what will happen this time.
Regulators have repeatedly warned that Bitcoin is a speculative market driven by hype, one that harms investors.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
