Will a ‘Bitcoin halving’ turn crypto into ‘digital gold’?

In the world of crypto, few events generate as much excitement and hype as a ‘Bitcoin halving’ which takes place approximately every four years and captivates both seasoned and new investors alike. But what exactly is a Bitcoin halving, and why is it dominating crypto headlines the world over? More importantly - what does it mean for those who own or would like to invest in the digital asset? 

We’ve set out to demystify the concept (it doesn’t involve Bitcoin’s value decreasing by 50%); explain its significance (Bitcoin won’t become more difficult to buy) and explore some of the implications for your portfolio (these could be more positive than you anticipated). 

What is Bitcoin halving?

Bitcoin operates using a technology known as blockchain (a secure digital ledger) that records transactions across a network of decentralised computers, ensuring transparency and immutability. Unlike traditional currencies, which are controlled by central banks and governments, the supply of Bitcoin is limited and there will only ever be 21 million Bitcoins in existence, making it a deflationary digital currency.

A Bitcoin halving is an in-built, pre-programmed event that takes place every 210,000 blocks, or roughly every four years. A block is simply a batch of transactions (i.e. payments between people) that are bundled together and added to the list of previous blocks, making.. a blockchain!. 

A blockchain miner is a participant in the blockchain network who uses computational power to validate and add these blocks (batches of transactions) to the blockchain. During a halving event, the reward given to these miners for verifying transactions and adding them to the blockchain is cut in half. 

In Layman’s terms: Miners receive fewer new Bitcoins for their efforts, reducing the rate at which new coins enter circulation.

Why is there so much hype and excitement around Bitcoin halving?

A fixed supply of 21 million Bitcoins means that, over time, these become increasingly scarce. As more people adopt Bitcoin and demand rises, the halving ensures that supply growth slows down, creating an environment reminiscent of precious metals like gold. This limited supply feature has contributed to Bitcoin's appeal as ‘digital gold’ and has led many to see it as a hedge against inflation.

Based on past experience, it is believed that the halving will have a profound economic impact on Bitcoin's ecosystem. With the reduction in block rewards, the flow of newly mined Bitcoins decreases, leading to a decrease in selling pressure from miners. In the past, halvings have been followed by periods of increased demand and price surges due to the dynamics of supply-demand. It is this history of post-halving price increases that has fueled the excitement and anticipation surrounding each event.

With cryptocurrency gaining increased mainstream media attention, halving events are now widely covered and media outlets often report on Bitcoin's price movements in relation to the upcoming halving event, further contributing to the hype and excitement within the crypto community.

In Layman’s terms: A halving is a pivotal event on the crypto calendar because of the effect it could have on price. 

What are the implications for investors? 

These events have historically had a positive impact on price and with the reduced issuance of new coins, the potential for scarcity-driven price appreciation becomes a very real driver of near-term investment for those hoping to benefit from a bull market. 

In Layman’s terms: If you’re considering investing, you might want to do so before the halving event takes place in order to avoid price increases.  It’s never guaranteed, but combined with increasing adoption and institutional interest, the next Bitcoin halving could have a significant impact on supply dynamics and market sentiment. 

The next Bitcoin halving is scheduled to take place at block 840,000. Those of you interested in marking your calendars will want to pencil in April 2024 as most news desks have predicted halving to occur some time that month.  

Disclaimer: Crypto is volatile, caries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.