Bitcoin’s next ‘halving’ is right around the corner

NEW YORK — Sometime in the next few days or even hours, the “miners” who chisel bitcoins out of complex mathematics are going to take a 50 percent pay cut — effectively slicing new production of the world’s largest cryptocurrency in half.

That could have a lot of implications, from the price of the asset to the bitcoin miners themselves. And, as with everything in the volatile cryptoverse, the future is hard to predict.

Here’s what you need to know.

WHAT IS BITCOIN HALVING AND WHY DOES IT MATTER?

Bitcoin “halving,” a preprogrammed event that occurs roughly every four years, impacts the production of bitcoin. Miners use farms of noisy, specialized computers to solve convoluted math puzzles; and when they complete one, they get a fixed number of bitcoins as a reward.

Halving does exactly what it sounds like — it cuts that fixed income in half. And when the mining reward falls, so does the number of new bitcoins entering the market. That means the supply of coins available to satisfy demand grows more slowly.

Limited supply is one of bitcoin’s key features. Only 21 million bitcoins will ever exist, and more than 19.5 million of them have already been mined, leaving fewer than 1.5 million left to pull from.

So long as demand remains the same or climbs faster than supply, bitcoin prices should rise as halving limits output. Because of this, some argue that bitcoin can counteract inflation — still, experts stress that future gains are never guaranteed.

HOW OFTEN DOES HALVING OCCUR?

Per bitcoin’s code, halving occurs after the creation of every 210,000 “blocks” — where transactions are recorded — during the mining process.

No calendar dates are set in stone, but that divvies out to roughly once every four years. The latest estimates expect the next halving to occur sometime late Friday or early Saturday.

WILL HALVING IMPACT BITCOIN’S PRICE?

Only time will tell. Following each of the three previous halvings, the price of bitcoin was mixed in the first few months and wound up significantly higher one year later. But as investors well know, past performance is not an indicator of future results.

“I don’t know how significant we can say halving is just yet,” said Adam Morgan McCarthy, a research analyst at Kaiko. “The sample size of three (previous halvings) isn’t big enough to say ‘It’s going to go up 500 percent again,’ or something.”

At the time of the last halving in May 2020, for example, bitcoin’s price stood at around US$8,602, according to CoinMarketCap — and climbed almost seven-fold to nearly $56,705 by May 2021. Bitcoin prices nearly quadrupled a year after July 2016’s halving and shot up by almost 80 times one year out from bitcoin’s first halving in November 2012.

Experts like McCarthy stress that other bullish market conditions contributed to those returns.

This next halving also arrives after a year of steep increases for bitcoin. As of Thursday afternoon, bitcoin stood at just over $63,500 per CoinMarketCap. That’s down from the all-time high of about $73,750 hit last month, but still double the asset’s price from a year ago.

Much of the credit for bitcoin’s recent rally is given to the early success of a new way to invest in the asset — spot bitcoin ETFs, which were only approved by U.S. regulators in January. A research report from crypto fund manager Bitwise found that these spot ETFs saw $12.1 billion in inflows during the first quarter.

Bitwise senior crypto research analyst Ryan Rasmussen said persistent or growing ETF demand when paired with the “supply shock” resulting from the coming halving, could help propel bitcoin’s price further.

“We would expect the price of Bitcoin to have a strong performance over the next 12 months,” he said. Rasmussen notes that he’s seen some predicted gains reaching as high as $400,000, but the more “consensus estimate” is closer to the $100,000-$175,000 range.

Other experts stress caution, pointing to the possibility the gains have already been realized.

In a Wednesday research note, JPMorgan analysts maintained that they don’t expect to see post-halving price increases because the event “has already been priced in” — noting that the market is still in overbought conditions per their analysis of bitcoin futures. / AP