The fourth bitcoin halving is a just weeks away but do you know the impact it will have on your bitcoin. Picture: Michael Wuensch/Pixabay
As the fourth bitcoin halving is just weeks away, cryptocurrency investors are looking to previous halvings to see how it will affect the price of the cryptocurrency.
This is according to Christo de Wit, country manager, Luno South Africa.
Every four years, the rate at which new bitcoin are released into circulation gets cut by half.
It's part of a process to stop the inflationary impact that would be caused by releasing the total supply (which is capped at 21 million bitcoin) too quickly an the last bitcoin is expected to be mined around 2140
For the crypto miners who validate transactions on the blockchain, bitcoin halving will see their bitcoin reward cut in half from 6.25 to 3.125 bitcoins per block. Less new bitcoin means less supply.
De Wit, “The halving is built into the algorithm that runs the bitcoin network as a deflationary measure and occurs every four years or so. There are no guarantees and it is anyone’s guess whether the price will drop, rise or maintain after the April halving.”
The third Bitcoin halving took place in May 2020 while two of the previous halvings were before dramatic price increases.
However, due to Bitcoin’s latest rally to a new all-time high means that this cycle looks distinct from previous cycles.
“This cycle already looks very different to previous cycles, with bitcoin testing all-time highs near the halving for the first time in its history,” de Wit said.
According to de Wit, many analysts also believe that the halving has had little impact on bitcoin’s previous price runs.
“Even if you accept the idea that the halving is a primary driver, there’s no guarantee it will continue to be so in the future,” de Witt said.
In the months leading up to the bitcoin halving, the first ever bitcoin exchange-traded funds (ETFs) in the United States was approved after which there was huge inflows of more than $12 million into these funds.
The month of March also saw a new all-time-high bitcoin price of over R1.37 million on Luno and there was outflows of around $83 million from the ETFs, another factor to consider ahead of the halving.
The first bitcoin halving took place in 2012 when bitcoin was priced at a little over $12. After the first halving the price of bitcoin jumped to $1,000 at the end of 2013.
The second halving event happened in July 2016 when bitcoin was valued at around $640 and by July 2017, the price of bitcoin had increased to $2,550.
The third halving took place on 11 May 2020, when bitcoin traded for about $8,750 but within a year, bitcoin reached around $62,000.
According to de Wit, other than from price fluctuations, the halving does not impact the amount and nature of bitcoin you own. The only impact is the rewards miners will receive.
At the time of the first halving in 2012, there were only 43,000 bitcoin addresses but today there are more than 46 million bitcoin addresses with more than $1 in them.
The overall supply of bitcoin will not decrease due to the halving.
Instead, the total supply is always increasing and will continue to do so until it hits the cap of 21 million around 2140.
De Wit said that the halving slows the release of new bitcoins by cutting the rewards of miners, it's like a measure to keep things in check and to avoid flooding the market.
IOL Business
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