How Will Halving Affect Bitcoin?

January 20, 2022

Most of BTC enthusiasts have heard about halving at least once. It is an event that happens every four years. To put it simply, the rate at which new bitcoins are generated will be halved. What will happen to the beloved cryptocurrency as a result of this eminent event?

  1. ELI5: BTC halving in simple terms
  2. Different experts — different opinions
  3. The main takeaway

ELI5: BTC halving in simple terms

“Normal” fiat money made of metals and paper can be produced as needed by governments all across the globe. It means that influxes of newly printed and minted notes and coins affect the market but with enough control from the government they are barely noticeable in the grand scheme of things. However, Bitcoin is a completely different animal. Every 10 minutes, a new BTC block is discovered and coins are produced.

The issue here is that this process is far from infinite and the total number of bitcoins is capped at 21 million. We are still far away from this number. To keep the mining going, the halving will reduce the rate at which new BTCs are discovered. Currently, a new block means that the miner gets 12.5BTC. Soon, this reward will be reduced to 7.25BTC.

With noticeably less bitcoins flowing into the market, the economy of cryptocurrencies can be greatly affected. So what will happen when the halving occurs on May, 2022?

Different experts — different opinions

Economy is still a subjective manner since prices are very often dictated by factors like fear and doubt. We can estimate some changes or predict the general direction of the market with some accuracy yet there are so many factors that are nearly impossible to consider that making an educated guess is hard even for veterans of financial markets. However, there are several opinions that are largely supported by experts.

  • The BTC won’t be affected at all. Jason Williams of Morgan Creek Digital predicts that the community is prepared for the event meaning that the current price and its dynamic likely account for upcoming changes to the bitcoin mining rate. When the halving occurs, there will be some volatility but it will unlikely bring any significant changes or panic to the market.
  • The BTC will fluctuate dramatically. The company called Grayscale that works with the Digital Currency Group published a finding that different experts interpreted in different ways. The study indicates that about third of market participants are not aware of the upcoming halving. It means that the news about it happening can affect the market dramatically or barely make a dent in the current price of the currency.
  • The BTC price will go up. Some experts predict that the scarcity of newly mined coins will create additional demand causing the price of BTC to go up. While it is possible, the current price is already quite high and previous halvings did not really affect the price as dramatically as expected.

The main takeaway

It is impossible to predict correctly how the halving will affect the price of bitcoin. However, we can safely assume that some volatility is inevitable. Staying calm and sticking to observations before acting is still the most reliable strategy!


Leave a Reply

Your email address will not be published. Required fields are marked *