The Next Bitcoin Halving: A Guide to Bitcoin's Quadrennial Event

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

"Bitcoin is the only economic entity where the supply is unaffected by the demand." 

The well-known, highly successful investor Bill Miller may be the only person to accurately explain Bitcoin halving in one sentence.  If you haven’t got your head around it yet, trust us, it’s definitely a concept that takes some time to understand. 

At the end of the day, no idea is truly original. Although unique in its design, Bitcoin halving harks back to times of backed currencies and natural resources. It’s really simple economics, turned entirely on its head. Keep reading to learn more about how halving works and why its function plays a crucial role in the overall value of Bitcoin.

When is The Next Bitcoin Halving?

2024

The halving is largely dependent on the speed at which coins are mined. After the 210,000th block since the last halving event is mined, the reward will be halved. This is estimated to occur sometime between February and June 2024.

Why Bitcoin Halving Happens

Halving cycles is Bitcoin’s answer to inflation, supply, and demand. With natural resources and fiat currency, value can fluctuate dramatically if one of these three levers changes. Bitcoin halving ensures a steady, somewhat predictable supply is always in the market no matter how much demand there is for the currency.

What Keeps The Cycle Going

• After a certain amount of coins are released into the network, the mining reward halves (e.g. going 50 to 25 coins, to 12.5, 6.25 and so on).
• Although the mining reward decreases, Bitcoin’s value should theoretically go up, since there are fewer coins available to mine (max supply caps at 21 million coins). This motivates miners to continue supporting the network in return for rewards.

Let’s use something a bit more tangible as an example. Gold, like Bitcoin, is a finite resource. After all the gold is mined on Earth, that’s it. If gold was unlimited, there would be no perceived value for it. Scarcity determines its worth.

Now let’s say that there were some issues with the equipment used to mine gold. These issues reduced overall productivity and miner output. The result: less gold in circulation compared to previous years.

In theory, having a reduced output would compound upon the scarcity of an already finite resource. And, ideally, the price of gold would go up.

That’s basically how halving works. This means the supply of new bitcoins is lower, making buying more expensive as network adoption continues to grow.

How Often the Halving Occurs

Based on current CPU processing power and the amount of active nodes (miners supporting the network) a halving event occurs once every 4 years.

This is a prediction based on previous events, and this interval is expected to remain the same throughout the mining phase of Bitcoin.

If the trend continues, the last coins are expected to be mined sometime around 2140, but more than 98% of all bitcoins will be mined by 2030.

Recommended Reading: Caleb & Brown: The Philosophy of Bitcoin

What Will Miners Do After 2140?

So what happens after all the coins are mined? What incentive do miners have to continue supporting the network? Bitcoin has an answer for that too: royalties (in layperson’s terms). 

The difference between the gold and silver miners of yesteryear and today’s crypto miners is that there's a paper trail. Proof of work gives miners corroborative evidence of their contributions to the network. Once all coins are mined, they receive an ongoing fee, paid out whenever they validate a block.

Preparing For The Next Halving

Although past results aren’t an indicator of future performance, historically, the value of Bitcoin has risen soon after each halving. This leads first-time investors into the asset class as the price action makes mainstream news and the network continues to grow.

To get a better understanding of Bitcoin supply and value, a stock-to-flow model works particularly well. Investments should be made with an educated assessment of where one believes crypto might be heading. Although never 100% accurate, stock-to-flow models offer a good overview of how Bitcoin’s scarcity and value could change over time.

Stock-to-flow models measure the total amount of stock in circulation against the mining rate for a particular period.

If stock increases and production slows, scarcity increases. This could in turn increase the value of an asset. Given the structure of Bitcoin mining and period halving, a stock-to-flow model is often looked to as an ideal for understanding Bitcoin’s value.

Of course, it all ends with you and your access to the right information to make a decision, as well as your risk profile 

Are You Ready to Invest in Bitcoin?

Bitcoin is a shining example of economic theory played out in our increasingly virtual world. There’s a reason why it’s grown to be the number one cryptocurrency by market capitalization. Yet as with any investment, it is not without its risks. 

If you’ve been exploring the crypto space and are looking to make the first step in investing, the team of experienced brokers at Caleb & Brown can help. It’s free to sign up for their personalized service, and you’ll also receive your own broker to help you with your transition to crypto investing. Get in contact today, and start investing for the future.

Image credit: Caleb & Brown

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.