What you need to know about the next Bitcoin halving date

Cryptocurrency and Bitcoin (BTC) markets are trading at an all-time high and are driven by a number of fundamental factors. The value of Bitcoin is currently experiencing the aftermath of the third halving event that occured in May 2020, with a market flare up that is expected to peak in late 2021.

Bitcoin halving is an important event for cryptocurrency investors as the Bitcoin mining reward is cut in half, causing a major power shift in the Bitcoin network. The next Bitcoin halving date will be in 2024. The purpose of halving events is to help control Bitcoin inflation and extend the currency lifespan by reducing the amount of new Bitcoin released into the market. Previous halvings led the way for a massive bull run that lasted about 18 months after the event, and market experts expect BTC/USD to reach US$59,000 or higher this year.

To prepare for the next Bitcoin halving date in 2024, it is important to understand exactly what Bitcoin halving entails and what it means for cryptocurrency investors.

What is Bitcoin halving?

Bitcoin halving occurs when block rewards are reduced by half, meaning the number of Bitcoins entering circulation when a block is produced will be issued half as fast as before. Bitcoin halving happens every 210,000 blocks on a schedule that is embedded in Bitcoin’s programming. The purpose of this process is to issue the total supply of Bitcoin less frequently into the market as time progresses. Mining the first 50% of Bitcoin took four years, but, thanks to Bitcoin halving, mining the remaining 50% will take about 120 years.

At the start of Bitcoin investment, miners received 50 Bitcoins per block that was produced. When the first halving occurred in 2012, this reward was reduced to 25 Bitcoins per block, and cut in half again to 12.5 with the second halving in 2016. The third Bitcoin halving happened in May 2020, when the reward was further reduced to 6.25 coins per block, or around US$8 million at prices at the time. Bitcoin halving will continue occurring until the block reward reaches zero, which is estimated to happen around the year 2140 with a predetermined total of 21 million Bitcoins.

What is the effect of Bitcoin halving?

The Bitcoin network relies on the functionality of the coin retaining its monetary value, and regular halvings are designed into the system to support this function. With each halving, the Bitcoin inflation rate is also cut along with the rate at which new Bitcoins enter circulation. Halving events are important to Bitcoin investors as it is expected to have a positive effect on Bitcoin prices over time. Rewards for miners may be smaller, but their value is higher.

The inflation rate of Bitcoin was 50% in 2011, but dropped to 12% after the first halving event. The second halving event caused another drop to 4-5%, and the current inflation rate after the third halving last year is 1.76%. This means that each halving event increases the value of Bitcoin while decreasing inflation and the size of rewards.

The principles of supply and demand are at play here, justifying price rises according to an increasing or steady demand. The total supply of Bitcoin is 21 million. At present, there are over 18 million Bitcoins in circulation, which leaves less than 3 million to be released in mining rewards. This can be compared to supply and demand in rare items like collector cars. If the value of a vintage car is based on scarcity, its value would increase as the number of cars in circulation decreases.

Should a Bitcoin halving event not drive demand and price, there would be no incentive for miners seeing as the reward for completing transactions would be smaller without an increase in Bitcoin value. Bitcoin prevents this from happening by modifying the difficulty levels of receiving mining awards. If rewards are halved and the value of Bitcoin does not increase, it would be made less challenging to receive a reward by completing transactions to maintain incentive for miners.

What is the outlook for 2021?

The most recent halving that took place in 2020 is one of the most important indicators that determine the Bitcoin outlook for 2021. When studying previous halvings, it can be seen that the market flares lasts about 18 months after the event.

With the first Bitcoin halving event in 2012, prices were going from under US$4 and climbed to US$13 by the end of the year. Traders were having a ball. When the second halving occurred in mid 2016, many market watchers learned from the previous round, which led to a strategic sell-off about a month prior to the event. Bitcoin prices skyrocketed after the second halving, reaching a peak of about US$20,000 by the end of 2017. Based on this pattern, the third halving event will likely reach its peak in November 2021.

There is not an unlimited supply of Bitcoin. With halving events occuring every four years, the next Bitcoin halving date in 2024 will cut the rewards down to 3.125. Nearly 90% of the total maximum Bitcoin supply has already been mined, so people who want to own or use a Bitcoin have to compete for the dwindling supply that is left to be released.

During the third halving event in 2020, the price per Bitcoin totalled at nearly US$8,500. The value only spiked about six months after the event when the cryptocurrency experienced a significant surge. At present, each Bitcoin is valued at around US$46,000. It is estimated that BTC/USD will reach US$59,000 this year with potential to spiral even higher.

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