Bitcoin: the halving is coming

A momentous event is about to take place in the world of Bitcoin. But what does it mean for crypto-currency investors? Amanda Taylor investigates. 

You might have heard people talking about Bitcoin and the halving and wondered what the heck they are on about and why you as an investor should care. Well, today is the day the halving is due to happen, for the third time in Bitcoin’s 11-year history.

Whether you’re a fan of investing in cryptocurrencies or not, it’s hard to ignore the attention Bitcoin receives in the media, mostly owing to it being touted as a bubble. While some people hail it as the soundest form of non-sovereign digital currency, others view it as a bubble and owing to its decentralised nature simply a tool for criminals to undertake their clandestine activities. Whatever your viewpoint, it’s hard to deny that Bitcoin is an interesting concept.

Like its physical counterpart, gold, Bitcoin is ‘mined’. This takes place through ‘miners’ supplying computing resource to finding blocks, which are then validated and added to the blockchain. If a miner successfully mines a valid block, they will receive a subsidy from the transactions relating to this block. At the moment, a new block is added to the Bitcoin blockchain every 10 minutes, with each block emitting a subsidy of 12.5 new Bitcoins. This equates to 144 blocks per day and 1,800 Bitcoins. But the monetary policy behind Bitcoin has a declining supply growth rate until the total supply of almost 21 million is fulfilled (estimate: March, 2140). This is where the halving comes in.

Bitcoin has a strictly regulated rate of supply of growth to reach its total supply of almost 21 million. In order to reach this total and to comply with its monetary policy, Bitcoin undergoes a halving. This is a hard-coded event which occurs every 210,000 blocks or approximately every four years. Bitcoin has undergone two halving events so far: the first happened in November 2012 at block 210,000 which reduced the block subsidy from 50 BTC to 25 BTC. This continued until July 2016 where the second halving occurred, reducing the subsidy to 12.5BTC. This brings us to today, where the third halving is due to take place at around 8pm this evening. What this means is that once the 629,000th block is reached, the halving will take place and from the 630,000th block onwards the yield will reduce from 12.5 new bitcoins to 6.25 bitcoins.

So what does this mean? Well for bitcoin miners, it’s bad news. The profit they gain from mining reduces, by half, instantly. This could mean that small and medium mining outfits may be forced to shut up shop as the computing power required for the mining might not justify the new yield. For cryptocurrency investors the outlook might be more positive, as previous halving events have led to a rally in Bitcoin prices. Bitcoin’s all time high of almost £15,000 was seen 18 months after the last halving. At the point the second halving occurred, the price was at around £500 so the all-time high represented a 30X increase over those 18 months. Experts suggest that as the halving cycles become longer, the point at which we see these fresh highs could be delayed with estimates for this halving showing its impact in the form of a new high between 18-24 months later.

At the time of writing this article, the price of Bitcoin is hovering around the £7,000 mark. This follows a 20% drop this weekend after peaking at just over £8,000 ($10,000) on Friday. Who knows what this halving cycle could bring, but whatever the future holds, with Bitcoin’s track record it’ll no doubt be a bumpy ride along the way and definitely not for the faint hearted – but then faint heart never won fair lady.

Happy halving day and may the odds be ever in your favour!