Understanding the Implications of the Upcoming Bitcoin Halving
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Chapter 1: The Impact of Bitcoin Halving
Following the fourth Bitcoin halving, miners will generate 450 new bitcoins daily. Currently, they produce 900 bitcoins each day, but this figure will be halved post-halving.
Supply Shock
Bitcoin halvings are integral to its protocol, occurring approximately every four years. They reduce the rewards miners receive, which influences the cycle of supply and demand. Each halving creates a supply shock, as new bitcoin holders gradually come to grasp its significance.
Historical Block Rewards:
- 1st Halving: 25 bitcoins
- 2nd Halving: 12.5 bitcoins
- 3rd Halving: 6.25 bitcoins
- Upcoming Halving: 3.125 bitcoins
Transactions on the Bitcoin network are processed roughly every 10 minutes, resulting in a daily reward of 900 bitcoins at the current rate.
Total Bitcoin Supply
Bitcoin has a capped supply of 21 million coins, making it both scarce and finite. Interestingly, bitcoins can be divided into smaller units, down to one hundred millionth of a bitcoin, known as a satoshi.
Liquidity Challenges
By reducing the daily bitcoin supply to 450, a supply shock influences market liquidity. While bitcoin markets are highly liquid and operate 24/7, the limited availability can lead to significant market effects.
Growing Conviction
Over time, an increasing number of bitcoins remain untouched in wallets, indicating long-term holding behavior among bitcoiners. For instance, about 15% of all bitcoins have not been moved for over a decade, totaling around 3 million coins, while roughly 70% have remained inactive for more than a year. This trend is indicative of the evolving mindset among investors.
Record Low Exchange Holdings
As of mid-2023, cryptocurrency exchanges held merely 11% of circulating bitcoins—a decreasing trend. This decline is attributed to a shift towards self-custody, sparked by events like the FTX collapse and growing distrust in third-party custodians.
Chapter 2: Hashrate and ETF Influences
The hashrate, which reflects the computational power of the Bitcoin network, has consistently increased, even with halvings making mining less profitable. The upcoming halving will test this trend, yet historical patterns suggest that hashrate will continue to rise over time, despite potential temporary displacements among miners.
ETF Market Dynamics
With institutions like BlackRock applying for spot Bitcoin ETFs, the demand for liquidity and bitcoins is set to increase. These ETFs will create competition for bitcoin among individuals, exchanges, financial institutions, corporate treasuries, and miners. Notably, nation-states, such as El Salvador, are also contributing to this growing demand.
Conclusion
The looming Bitcoin halving in late April 2024 will significantly reduce daily bitcoin production from 900 to 450. This shift will intensify the race to accumulate bitcoin, heightening competition in the market.
The subsequent video explores the price implications of the Bitcoin halving and what investors might expect in the future.
10 Essential Facts About Bitcoin
- Bitcoin was created by Satoshi Nakamoto in 2008.
Thank you for reading! Please note that I am not a financial advisor, and this content does not constitute financial advice. All views expressed are my own. For more insights like these, consider signing up for my weekly newsletter.