NEW YORK (AP) – The “miners” who carve Bitcoin out of complex mathematics will have their salaries cut by 50%, effectively reducing new production of the world's largest cryptocurrency once again.
Bitcoin's latest “halving” appears to have occurred on Friday night. Immediately after the long-awaited event, the price of Bitcoin stabilized at around $63,907.
All eyes are now on what will happen next. Beyond Bitcoin's long-term price trend, which is highly dependent on other market conditions, experts point to the potential impact on Bitcoin miners' own day-to-day operations. But like everything in the volatile crypto world, predicting the future is difficult.
Here's what you need to know:
What is Bitcoin halving and why is it important?
The Bitcoin “halving” is a pre-programmed event that occurs approximately every four years and impacts the production of Bitcoin. Miners use a farm of noisy specialized computers to solve complex mathematical puzzles. And when you complete one, you will receive a certain number of Bitcoins as a reward.
As the name suggests, halving means that your fixed income is cut in half. And as mining rewards decrease, so will the number of new Bitcoins entering the market. This means that the supply of coins available to meet demand increases more slowly.
Limited supply is one of the key characteristics of Bitcoin. There are only 21 million Bitcoins in existence, over 19.5 million of which have already been mined, leaving less than 1.5 million Bitcoins to be extracted.
As long as demand remains the same or rises faster than supply, the price of Bitcoin should rise if production is halved. Because of this, some argue that Bitcoin can fight inflation, but experts nevertheless stress that future profits are by no means guaranteed.
How often do half-lives occur?
According to Bitcoin's code, a halving occurs when every 210,000 “blocks” in which transactions are recorded during the mining process are created.
There is no fixed calendar date, but it occurs approximately once every four years.
Will the halving affect the price of Bitcoin?
only time will tell. After each of his three halvings to date, Bitcoin's price was mixed for the first few months, but rose significantly a year later. However, as investors well know, past performance is not indicative of future results.
“It remains to be seen how important the half-life is,” said Adam Morgan-McCarthy, a research analyst at Kaiko. “The sample size of three[previous halvings]is not large enough to say, 'We're going to go up 500% again.'”
For example, according to CoinMarketCap, at the time of the last halving in May 2020, Bitcoin's price was around $8,602, but by May 2021 it had increased almost seven times to $56,705. It rose close. The price of Bitcoin has increased almost 80 times in the year since Bitcoin's first halving in November 2012, nearly quadrupling in the year since the July 2016 halving and shot. Experts like McCarthy emphasize that other bullish market conditions contributed to these gains.
Friday's halving also comes after a year of rapid gains for Bitcoin. As of Friday night, Bitcoin price was $63,907 per CoinMarketCap. That's down from last month's all-time high of about $73,750, but the asset is still worth twice as much as it was a year ago.
Much of the credit for Bitcoin's recent rally can be attributed to the early success of a new way to invest in Bitcoin assets: the Spot Bitcoin ETF, which was just approved by US regulators in January. According to a research report by crypto fund manager Bitwise, these spot ETFs (short for exchange-traded funds) received $12.1 billion in inflows in the first quarter.
Ryan Rasmussen, senior crypto research analyst at Bitwise, said sustained or growing demand for ETFs, combined with a “supply shock” from the upcoming halving, could push Bitcoin prices even higher.
“We expect Bitcoin prices to remain strong over the next 12 months,” he said. Rasmussen notes that while some are predicting profits of up to $400,000, the “consensus estimate” is more in the $100,000 to $175,000 range.
Other experts emphasize caution, saying the benefits may already have been realized.
Analysts at JPMorgan argued in a research note on Wednesday that the event is “already priced in,” so we don't expect a price increase after the halving, and our analysis of Bitcoin futures shows that the market remains overbought. He pointed out that the situation is past.
What about miners?
Miners, on the other hand, will face the challenge of compensating for reduced rewards while keeping operating costs down.
“Even if the price of Bitcoin rises slightly,[the halving]will have a significant impact on miners' ability to pay,” said Andrew W. Baltazor, a Miami-based lawyer who specializes in digital assets at Holland & Knight. There is a possibility.” “There is no way we can expect Bitcoin to go straight to the moon. As a business model, we need to plan for extreme volatility.”
Well-prepared miners could be laying the groundwork in advance, perhaps by increasing energy efficiency or raising new capital. However, fissures can appear in companies that are inefficient and under-managed.
One possible outcome is consolidation. This is becoming increasingly common in the Bitcoin mining industry, especially in the wake of the 2022 crypto crash.
In a recent research report, Bitwise found that miners' total revenue decreased one month after each of the past three halvings. However, thanks to a sharp rise in Bitcoin prices and the expansion of large-scale miners, these numbers have rebounded significantly in a full year.
Only time will tell how mining companies fare in the wake of this halving. But Rasmussen is betting that major companies will continue to expand and take advantage of the industry's technological advances to make their operations more efficient.
What about the environment?
Identifying conclusive data on the environmental impact directly related to Bitcoin's halving is still a bit of a question mark. However, it is no secret that crypto mining consumes a lot of energy overall, and operations that rely on polluting sources have been of particular concern for years.
According to a recent study published by United Nations University and Earth's Future Journal, the carbon emissions from Bitcoin mining across 76 countries in 2020-2021 will be equivalent to 84 billion pounds of coal burned or 190 natural gas-fired power plants. This amount was found to be equivalent to the amount of emissions from the operation of Coal met the majority of Bitcoin's electricity needs (45%), followed by natural gas (21%) and hydropower (16%).
The environmental impact of Bitcoin mining primarily comes down to the energy source used. Industry analysts argue that the push to expand the use of clean energy has increased in recent years, coinciding with growing calls for climate protection from regulators around the world.
Production pressure may cause miners to consider cutting costs. Ahead of the latest halving, JPMorgan warns that some Bitcoin mining companies may be “considering diversification into regions with lower energy costs” to deploy inefficient mining rigs. did.
Wyatt Grantham Phillips, Associated Press
