Investors are hopeful that a major event called the bitcoin “halving,” happening next month, could drive the price of the cryptocurrency to new record highs.
Bitcoin, after a lengthy slump, is back in the headlines and breaking records once again. It recently reached a record high of over $70,000 amid positive developments in the crypto space and general optimism. And the coming halving could further provide a boost for the cryptocurrency, one that experts say might have some staying power.
Halving is part of bitcoin’s complicated design. To “mine” for bitcoin, high-powered computers are used to verify virtual coin transactions. Bitcoin operates on what is known as a blockchain, essentially a public ledger, that contains the history of every transaction. The miners’ computers solve complicated math problems in order to add new blocks to the chain and are in turn rewarded with the digital token, making the endeavor profitable.
But about every four years, the block rewards for bitcoin miners get slashed in half, reducing the supply of new bitcoins by 50%. That makes the product a scarcer commodity and tends to raise the price in the following months.
“We have seen, historically, significant price increases in the months following the halving,” Grant McCarty, co-executive director of the Bitcoin Policy Institute, told the Washington Examiner. “What’s interesting is every cycle is different, so anybody who tells you that they know exactly what is going to happen … don’t listen to that person.”
McCarty noted, though, that this is the first time bitcoin has reached all-time highs before the halving.
This year, the halving is expected to occur sometime in April, with the current estimate being April 25, according to a countdown by NiceHash.
McCarty said that halving was created as a means of reducing the inflationary components that are seen with other types of currency. The idea is that the reward for mining bitcoin reduces every four years and that increases competition on the network. It makes it more difficult for mining to be profitable — basically, bitcoin’s price would need to double in order for those miners to reap the same gains.
Reggie Jerath, founder and CEO of Hydro, pointed out that past halving cycles have coincided with bull markets for bitcoin. He expects this new cycle to shake out the same as past halvings and thinks the price of bitcoin will likely grow.
“It will definitely cross $100,000, and how far north of $100,000 — I don’t think it will go over $250,000,” he told the Washington Examiner, estimating that it will probably land somewhere between those two numbers.
The last halving occurred in May 2020. At the time, the cryptocurrency was priced at about $9,500. By the end of 2020, the price had risen to over $32,000, marking enormous 236% returns.
Notably, it is not too likely that bitcoin immediately surges following the halving next month. Rather, Jerath said, by historical standards, bitcoin is likely to see gradual movement upward through the end of 2024.
Jerath also said that, this time around, bitcoin has gotten far more institutional exposure. He noted the Securities and Exchange Commission’s groundbreaking decision in January to allow bitcoin ETFs in the market. Some experts and investors saw the decision as a watershed moment for the crypto market and only see the nascent industry as growing from there.
But the halving will also have broader economic implications beyond just the cryptocurrency world.
McCarty pointed out that bitcoin miners go to where energy is cheapest and most available. So when this mining reward cuts in half during the halving, cheaper energy will be needed to maintain profit margins.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
“Increasingly, what we’re seeing is bitcoin miners are using wind, they’re using solar, they’re using hydro runoff, they’re using a ton of renewable and sustainable energy,” McCarty explained.
He said bitcoin miners are expected to set up shop using untapped renewable energy not only in the U.S., but in places like Africa where there is a ton of energy generation but no buyers. He said that new parts of Africa may become electrified because of the energy grids built out due to bitcoin miners.
