What Is Bitcoin Halving? Dates, Why It Matters and How It Affects ETFs

What Is Bitcoin Halving? Dates, Why It Matters and How It Affects ETFs

A planned reduction in new bitcoin supply can impact the cryptocurrency’s price.

kent
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Research Lead
Reviewed by: etf.com Staff
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Edited by: James Rubin

Bitcoin halving occurs every four years, but next month’s next event promises to be unique, given crypto’s soaring trading volume and price in recent weeks, and its growing presence in the investment community.  

These trends follow the Jan. 10 approval of 10 spot bitcoin ETFs, which have spurred the latest bitcoin price gains of nearly 38% since that date. Bitcoin was recently trading at about $62,500, not far off its all-time high of about $69,000, set in November 2021. 

Many crypto analysts foresee bitcoin traveling much higher this year with a number of them now predicting it will hit six figures, fueled by a combination of the onrushing demand for spot bitcoin ETFs and the halvings. But the impact directly from the halving remains uncertain.  

Find out what halving means in the world of Bitcoin, and how it can affect BTC’s price, bitcoin miners and the exchange-traded funds that invest in them. 

What Is Bitcoin Halving?

Bitcoin halving is an event that occurs approximately every four years in the Bitcoin network, or after every 210,000 blocks are mined, when the reward that miners receive is halved. The halving process is built into the Bitcoin protocol to control the supply of new bitcoins and gradually reduce the rate at which new coins are introduced into circulation.  

The halving events contribute to the controlled supply of bitcoins. By reducing the rate at which new bitcoins are created, the total supply of bitcoins approaches its maximum limit of 21 million. This scarcity is a fundamental aspect of bitcoin and is often cited as a factor contributing to its value proposition.  

Bitcoin Halving Dates: When Is the 2024 Event? 

Although the exact timing of halving dates can't be precisely forecast, the next bitcoin event is estimated to be mid-April 2024. The reason that a precise halving date can’t be predicted far in advance is because halving events don’t take place on a date schedule but rather a “block height” schedule predetermined in the Bitcoin protocol.  

The 2024 halving will see the block reward fall from 6.25 to 3.125 bitcoins. The first bitcoin halving occurred in November 2012 when the reward decreased from 50 bitcoins to 25. The second halving occurred in July 2016, reducing the reward from 25 bitcoins to 12.5. The third halving occurred in May 2020, further reducing the reward to 6.25 bitcoins. 

Bitcoin Price Prediction and the History of Halving

Bitcoin price predictions for 2024 also vary but crypto analysts forecast the BTC price reaching anywhere from $95,000 to $170,000 by 2025 While past performance doesn’t necessarily predict of future results, analyzing bitcoin's price movements around past halving events can offer some insights. For example, pre-halving rallies have been common, but post-halving performance has been mixed.  

Pre-halving Bitcoin Rally

In most instances, bitcoin's price has experienced a pre-halving rally in the months leading up to the event, the most recent example being February of 2024, when BTC’s price rose 45%. This could be attributed to increased market anticipation and speculation on the potential supply shock caused by the halving. 

Post-halving Bitcoin Performance 

The price performance following the halving has been more varied. Following the first two halvings (November 2012 and July 2016), bitcoin saw substantial price increases in the subsequent months and years. Following the third halving (May 2020), the price initially dipped but then embarked on a significant bull run, reaching its all-time high. 

Overall, while some historical data suggests potential price increases around halving events, it's essential to remember that the cryptocurrency market is complex and influenced by various factors. Investors should not solely rely on past performance when making investment decisions and should conduct thorough research and due diligence before investing in any cryptocurrency. 

How Will Halving Affect Bitcoin Miners?

The upcoming bitcoin halving in 2024 will present both challenges and opportunities for bitcoin miners. Those who can adapt and optimize their operations effectively may be able to navigate the changing landscape. Here are several ways that bitcoin miners may be affected by the next halving: 

  • Reduced income: The most immediate and direct impact will be a 50% reduction in the block reward, which is the amount of bitcoin awarded to miners for successfully verifying transactions and adding new blocks to the blockchain. This will cut their overall income in half. 
  • Increased competition: With the reduced reward, competition among miners to secure blocks is likely to intensify. Miners will need to optimize their operations and potentially invest in more efficient hardware to remain profitable. This could lead to consolidation within the mining industry, with smaller miners struggling to compete. 
  • Focus on transaction fees: As the block reward decreases over time, transaction fees will become a more significant portion of miners' income. This could incentivize miners to prioritize processing transactions with higher fees, potentially affecting the overall network transaction speed and cost. 
  • Bitcoin price: If the price of bitcoin increases significantly after the halving, it could offset the decrease in block reward and maintain profitability for miners. 
  • Mining difficulty: The mining difficulty is automatically adjusted to maintain a consistent block generation time. If the difficulty increases significantly, it will be harder and more expensive for miners to earn rewards, further affecting profitability. 
  • Electricity costs: The cost of electricity is a major expense for miners. Fluctuations in energy prices can significantly impact their profitability. 

What Is Bitcoin Mining and How Does It Work?

Bitcoin mining is the process by which new bitcoins are created, and it also serves as the mechanism for securing the Bitcoin network by confirming and validating transactions. Mining involves solving complex mathematical problems using computational power. Here's a brief explanation about how bitcoin mining works: 

Nodes and the Blockchain

Bitcoin operates on a decentralized network of nodes, and transactions are validated by miners. Miners use powerful computers to solve complex mathematical problems, and when they successfully mine a new block of transactions, they are rewarded with new bitcoins.  

Bitcoin Miners and Blocks

Miners select a set of unconfirmed transactions from the pool and group them into a block. This block also contains a reference to the previous block, creating a chain of blocks, hence the term "blockchain." The miner's goal is to create a block that, when hashed, meets certain criteria defined by the Bitcoin protocol.  

Why Does Bitcoin Halving Matter?

Bitcoin halvings are a significant event for the cryptocurrency market. Halving events help to ensure the long-term viability of bitcoin by reducing the number of new coins that are created. Halving can increase demand for bitcoin as investors anticipate the reduced supply of new coins, leading to a price increase for bitcoin.  

How Will the 2024 Bitcoin Halving Affect ETFs?

Bitcoin halving events can impact bitcoin ETFs and the broader cryptocurrency market, although outcomes can vary. For example, buying into the scarcity narrative, some investors may view bitcoin as a more attractive store of value, potentially influencing demand for bitcoin ETFs, whereas heightened awareness can lead to price gains well in advance, leaving little room for more gains once the event occurs.  

The halving can also have implications for the economics of bitcoin mining. With a reduced block reward, miners must rely more on transaction fees to maintain profitability. This can lead to increased competition among miners and changes in the distribution of mining power.  

In the bullish case for bitcoin halving spot bitcoin ETFs like the iShares Bitcoin Trust ETF (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC), as well as bitcoin futures ETFs like the ProShares Bitcoin Strategy ETF (BITO), would benefit. 

In the the bearish case for bitcoin halving bitcoin mining ETFs like the Valkyrie Bitcoin Miners ETF (WGMI), would decline. That said, this fund holds large bitcoin miners who can thrive in the long term if smaller miners falter in the newer, more competitive environment.  

Bitcoin Halving Countdown: Bottom Line for Investors

Bitcoin halving events occur roughly every four years and can have a significant impact on the price of bitcoin. In the months leading up to a halving event, the price of bitcoin typically rises as investors anticipate the reduced supply of new coins. After a halving, the price of bitcoin can be volatile, but it typically continues to rise over time.  

It's important to note that while Bitcoin halving events have been associated with price volatility in the past, they are just one of many factors influencing the cryptocurrency market. The relationship between halving events and price movements is complex, and investors should consider a range of factors when analyzing the potential impact on bitcoin's price and market dynamics. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.