By WYATTE GRANTHAM-PHILIPS (AP Business Writer)
NEW YORK (AP) — In the next few days, the production of bitcoins will be reduced by 50%, cutting the cryptocurrency's new output in half.
This could have various effects, from the asset's price 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., 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.
As long as demand remains the same or grows 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% again,’ or something.”
At the time of the last halving in May 2020, for example, bitcoin’s price stood at around $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.
Many people attribute bitcoin’s recent surge in value to the early success of a new method for investing in the asset known as spot bitcoin ETFs, which were approved by U.S. regulators in January. A research report from crypto fund manager Bitwise discovered that these spot ETFs, also called exchange-traded funds, attracted $12.1 billion in investments during the first quarter.
Ryan Rasmussen, a senior crypto research analyst at Bitwise, stated that sustained or increasing demand for ETFs, combined with the “supply shock” resulting from the upcoming halving, could contribute to further increasing bitcoin’s price.
“We anticipate that the price of Bitcoin will perform strongly over the next 12 months,” he remarked. Rasmussen acknowledged that some have predicted gains reaching as high as $400,000, but the more commonly agreed upon estimate falls within the $100,000-$175,000 range.
Other experts urge caution, pointing out the possibility that the gains may have already been achieved.
In a research note on Wednesday, JPMorgan analysts maintained that they do not anticipate seeing post-halving price increases because the event “has already been already priced in” — noting that the market is still in overbought conditions according to their analysis of bitcoin futures.
WHAT ABOUT MINERS?
Meanwhile, miners will face the challenge of compensating for the reduction in rewards while also managing operating costs.
“Even if there’s a slight increase in bitcoin price, (halving) can really impact a miner’s ability to pay bills,” said Andrew W. Balthazor, a digital assets specialist attorney based in Miami. “You can’t assume that bitcoin is just going to go to the moon. As a part of your business model, you have to plan for extreme volatility.”
Miners who are better prepared have probably laid the groundwork ahead of time, possibly by enhancing energy efficiency or raising new capital. However, less-efficient, struggling firms may encounter difficulties.
One probable outcome is consolidation. This has become increasingly common in the bitcoin mining industry, especially following a major cryptocurrency crash in 2022.
According to a recent research report by Bitwise, total miner revenue decreased one month after each of the three previous halvings. However, these figures had significantly rebounded after one year — thanks to increases in the price of bitcoin as well as larger miners expanding their operations.
Time will reveal how mining companies will fare following this next looming halving. However, Rasmussen is confident that major players will continue to expand and utilize the industry’s technological advances to make operations more efficient.
WHAT ABOUT THE ENVIRONMENT?
Obtaining definitive data on the environmental impacts directly associated with bitcoin halving is still somewhat uncertain. Nevertheless, it’s well known that crypto mining consumes a substantial amount of energy — and activities reliant on polluting sources have raised particular concerns over the years.
Recent research released by the United Nations University and Earth’s Future journal revealed that the carbon footprint of 2020-2021 bitcoin mining across 76 nations was equivalent to emissions from burning 84 billion pounds of coal or operating 190 natural gas-fired power plants. Coal catered to the majority of bitcoin’s electricity needs (45%), followed by natural gas (21%) and hydropower (16%).
Environmental effects of bitcoin mining primarily relate to the type of energy used. Experts in the industry have stated that there has been a growing focus on using more environmentally friendly energy sources in recent years, in line with increasing demands for climate protection from global regulators.
However, the pressure to produce more could lead miners to use cheaper and less eco-friendly energy sources. JPMorgan also warned that some bitcoin mining companies may seek to expand into regions with low energy costs to use inefficient mining equipment, as the upcoming halving approaches.
