Dmitry Gooshchin Answers: What to Expect from Bitcoin Halving In Today’s More Mature Crypto Market

In an era where the “free market” isn't so free, it's refreshing to know that at least one upcoming event will exemplify what a free economy is all about, where the simple law of supply and demand sets prices – without undue interference from meddling central banks and the like. That event – a potentially profitable one, at that – is the next Bitcoin Halving, set for April. This will be the fourth time this baked-in feature of the world's most popular cryptocurrency will take place. Each of the previous halvings saw the price of Bitcoin increase significantly – and experts believe that is likely to happen yet again, especially as crypto in general makes other strides toward being a more mature market.

How Bitcoin Halving Will Impact Supply (Negatively)

Bitcoin “Halving” refers to changes in the way the cryptocoin’s miners are rewarded for their efforts. Bitcoins are electronically generated in a process known as Bitcoin Mining. Their creation involves solving complex cryptographic formulas by miners – who are increasingly members of large, sophisticated, and well-funded international organizations. The objective is to create a new block on the blockchain, representing the transactions creating coins during a specified time period. 

Once a block is created (144 blocks which include about 900 new BTC are mined per day on average, data shows), the creators of a block registers their created coins in the BTC blockchain – with each block currently worth 6.25 BTC (the rate is set by the rate is set by the Blockchain Council), which they can now sell. And although it sounds as if miners make a great deal of profit (each Bitcoin is currently worth about $46,000), the expenses involved in mining make a significant dent in that profit. 

So the Bitcoin “commission” is not just payment for services rendered – it's also an incentive for miners to create new BTC. But that incentive is set to be slashed – by half (hence the term “halving”). This happens approximately once every four years, so beginning in April, miners will be rewarded just 3.125 BTC for their creation work. Experts say that it can cost as much as $30,000 to mine a Bitcoin, given the high price of the power required to run the large server farm needed to produce BTC. And when the incentive is halved, miners will be squeezed even further by cost.

Fewer Bitcoins = Potential for Higher Prices 

With incentive rewards lowered, but mining costs remaining the same (or rising), BTC mining becomes less profitable, theoretically leading to fewer coins being mined, as less efficient miners – those who can't reign in expenses or cut production costs - are either driven out of the business or are forced to join one of the large mining conglomerates. But with demand for BTC consistently rising overall since its inauguration, a scarcity of supply is likely to trigger higher prices for the coins that are created. 

How much higher? Industry experts believe that post-halving prices could boost BTC from its current $46,000 value to anywhere from significantly over $50,000 to as much as $300,000, and perhaps even higher. Some of that increase could take place even before the halving event; indeed, it appears that that is happening already, with BTC climbing by about $20,000 since last October. And the approval in recent days by the SEC of 13 Bitcoin spot ETFs  will make the cryptocurrency even more attractive, likely spurring even more demand. This comes after other signs of maturity in the market, including the crackdown on corruption and illegal practices of bad players like SBF and CZ.

But as demand continues to rise, it's likely that BTC price will rise even more when halving becomes a reality. Demand chasing supply is a sure-fire recipe for rising prices. That’s how an open, free economy works. Bitcoin, unfettered by extraneous regulatory issues (other than those preventing them from being used illicitly, largely), is a perfect example of how the free market supply-vs.-demand system works. 

Ushering in A New, Less Volatile Era for Crypto

For investors, this awareness could mean big profits. Unlike other asset classes where the future is rife with unknowns – will winter storms harm the Florida orange crop, or will a new discovery impact the price of oil – Bitcoin's supply-and-demand halving is a future event that is known, with the rule that it follows of lesser supply and greater demand (at least based on historical precedent) known as well. Bitcoin has traditionally been seen – not without good reason - as a risky investment, but many investors are likely to see BTC prices based on halving as a lot more secure than many other investments.

We live in a volatile world, which makes investing – in anything – a risk. Volatility usually means that the rules as we know them, the rules we expect to be in effect, aren't always – but the upcoming halving of Bitcoin exemplifies a rule we are familiar with, a rule we know works well. Exactly how much the price of Bitcoin will be affected is of course unknown, but the halving event is likely to be significant, especially as crypto continues to develop into a more mature and accepted asset.