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

The next bitcoin halving is expected to occur in 2024. Investors are already starting to anticipate this event, in addition to an SEC approval on a spot bitcoin ETF, and the price of bitcoin has been rising in recent months. 

Find out what halving means in the world of bitcoin, why it matters to investors and how it may impact exchange-traded funds. 

Definition of 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 as a way 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. 

2024 Bitcoin Halving Dates 

The next bitcoin halving date is estimated to be April 2024, with a possibility of the halving event to occur as early as March or as late as May. The exact date can’t be forecast because halving events don’t take place on a date schedule but rather a “block height” schedule predetermined in the Bitcoin protocol. This halving will see the block reward fall from 6.25 to 3.125 bitcoins.  

The first bitcoin halving took place 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. 

The Basics of Bitcoin Mining 

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 Effect 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. 

The bullish case for bitcoin halving can benefit bitcoin futures ETFs like the ProShares Bitcoin Strategy ETF (BITO), as well as spot bitcoin ETFs, which are expected to gain SEC approval by January 2024, potentially increasing buyer interest and pushing the price of bitcoin higher. 

The bearish case for bitcoin halving could be more pronounced with bitcoin mining ETFs like the Valkyrie Bitcoin Miners ETF (WGMI). 

What Investors Need to Know About the Bitcoin Halving 

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.