Achi news desk-
Photo: The Canadian Press
FILE – An advertisement for the cryptocurrency Bitcoin displayed on a tram, May 12, 2021, in Hong Kong. Sometime in the next few days or even hours, the “miners” who carve bitcoins out of complex mathematics will take a 50% pay cut – effectively cutting new emissions from the world’s largest cryptocurrency in an event called the halving of bitcoins. (AP Photo/Kin Cheung, File)
The “miners” who carve bitcoins out of complex math take a 50% pay cut – effectively reducing new production of the world’s largest cryptocurrency, again.
Bitcoin’s latest “halving” appeared to take place on Friday night. Shortly after the highly anticipated event, the price of bitcoin held steady at around $63,907.
Now, all eyes are on what will happen down the road. Beyond the long-term price behavior of bitcoin, which is highly dependent on other market conditions, experts point to possible effects on the day-to-day operations of the asset’s miners themselves. But, as with everything in the volatile cryptoverse, the future is hard to predict.
Here’s what you need to know.
WHAT IS BITCOIN HALFIES AND WHY IS IT IMPORTANT?
The Bitcoin “halving,” a pre-programmed event that occurs roughly every four years, affects bitcoin production. Miners use farms of noisy, specialized computers to solve complex 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 meet demand grows more slowly.
Limited supply is one of the key features of bitcoin. Only 21 million bitcoins will ever exist, of which more than 19.5 million have already been mined, leaving less than 1.5 million left to draw from.
As long as demand stays the same or climbs faster than supply, bitcoin prices should rise as the halving limits output. Because of this, some argue that bitcoin can counteract inflation – still, experts emphasize that future returns are never guaranteed.
HOW OFTEN HALF HAPPENS?
According to bitcoin code, a halving occurs after every 210,000 “blocks” – where transactions are recorded – are created during the mining process.
No calendar dates are set in stone, but it roughly divides once every four years.
WILL THERE BE A LONG-TERM EFFECT ON THE PRICE OF BITCOIN?
Only time will tell. Following each of the previous three halvings, the price of bitcoin was mixed in the first few months and ended significantly higher a year later. But as investors well know, past performance is no indicator of future results.
“I don’t know how significant we can say a halving is yet,” said Adam Morgan McCarthy, a research analyst at Kaiko. “The sample size of three (previous halves) is not 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, the price of bitcoin was around $8,602, according to CoinMarketCap — and climbed nearly sevenfold to nearly $56,705 by May 2021. Bitcoin prices nearly quadrupled nearly a year after the halving and July 2016 shot up nearly 80 times a year out of bitcoin’s first halving in November 2012. Experts like McCarthy emphasize that other bullish market conditions contributed to those gains.
Friday’s halving also arrives after a year of steep gains for bitcoin. As of Friday evening, the price of bitcoin was $63,907 per CoinMarketCap. That’s down from a record high of around $73,750 hit last month, but still double the asset’s price from a year ago.
Much of the credit for bitcoin’s recent rally is given to the early success of a new way of investing in the asset – spot bitcoin ETFs, which were only approved by US regulators in January. A research report from crypto fund manager Bitwise found that these ETFs, short for exchange-traded funds, saw $12.1 billion in inflows during the first quarter.
Bitwise senior crypto research analyst Ryan Rasmussen said continued or growing ETF demand, when paired with the “supply shock” resulting from the next halving, could help push bitcoin’s price further.
“We would expect the price of Bitcoin to have a strong performance over the next 12 months,” he said. Rasmussen notes that he has seen some predict earnings reach as high as $400,000, but the larger “consensus estimate” is closer to the $100,000-$175,000 range.
Other experts stress warning, pointing to the possibility that gains have already been realized.
In a research note on Wednesday, JPMorgan analysts said they do not expect to see price increases after the halving because the event is “already priced in” – noting that the market is still in overbought conditions in line with their analysis of the future of bitcoin.
WHAT ABOUT MINERS?
Meanwhile, miners will be challenged to compensate for the drop in rewards while also keeping operating costs down.
“Even if there is a small increase in the bitcoin price, (a halving) can really affect a miner’s ability to pay bills,” said Andrew W. Balthazor, a Miami-based attorney specializing in digital assets at Holland & Knight. “You can’t assume that bitcoin is going to go to the moon. Like your business model, you have to plan for extreme volatility.”
Better prepared miners probably laid the groundwork ahead of time, perhaps by increasing energy efficiency or raising new capital. But cracks can appear for less efficient and struggling companies.
One likely outcome: Consolidation. That has become increasingly common in the bitcoin mining industry, especially following a major crypto crash in 2022.
In its recent research report, Bitwise found that total miner revenue fell one month after each of the previous three halves. But those figures had rebounded significantly after a full year – thanks to spikes in the price of bitcoin as well as larger miners expanding their operations.
Time will tell how mining companies do following this latest halving. But Rasmussen is betting that big players will continue to expand and use the industry’s technological advances to make operations more efficient.
WHAT ABOUT THE ENVIRONMENT?
Identifying definitive data on the environmental impacts directly related to the bitcoin halving is still somewhat of a question mark. But it’s no secret that crypto mining is generally energy-intensive – and operations that rely on tainted sources have drawn particular attention over the years.
Recent research published by the United Nations University and the journal Earth’s Future found that the 2020-2021 carbon footprint of bitcoin mining across 76 nations is equivalent to the emissions of burning 84 billion pounds of coal or running 190 natural gas power plants. Coal met most of bitcoin’s electricity requirements (45%), followed by natural gas (21%) and hydropower (16%).
The environmental impacts of bitcoin mining are mainly due to the energy source used. Industry analysts have claimed that a push towards greater use of clean energy has increased in recent years, coinciding with growing calls for climate protections from regulators around the world.
Production pressures could mean miners look to cut costs. Ahead of the latest halving, JPMorgan warned that some bitcoin mining companies “may look to diversify into low energy cost regions” to use inefficient mining rigs.
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