1. Bitcoin's Price History
2. Why Bitcoin Has a Volatile Value
3. What Is Bitcoin Halving and Why It Matters for Crypto Investors
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What Is Bitcoin Halving?

Bitcoin halving refers to an event that takes place about every four years and reduces the block reward by 50%. This lowers the supply of bitcoins entering the market, which increases scarcity and can act to raise its price if market conditions remain the same.

Block rewards are part of theblockchain’s automatic process of validating transactions and opening new blocks (called mining). Miners, participants who compete in a race to solve a cryptographic puzzle, are given new bitcoins if they are the first to solve it.

Their block is added to the blockchain, they receive a reward, and the network starts another race. All miners confirm the data in the newly added block while trying to solve the puzzle for their own new blocks, hoping for an ever-decreasing reward.

Evaluating the Benefits and Drawbacks of Bitcoin Halving

Many people believeBitcoin halvings benefit itsecosystem and market value, though some disagree.

How Bitcoin Halving Affects Inflation

One of the key concepts behind halving the reward is to addressinflation concerns. Inflation occurs when a currency buys fewer goods over time. In the United States, inflation is measured by how much it costs to buy a basket of goods. There is an acceptable inflation rate that is considered good for an economy—usually 2%—but this number is generally a target set by central banks as a goal rather than a reachable figure.

Bitcoin halving counters inflation by reducing rewards and maintaining scarcity. However, this inflation “protection” mechanism does not protect Bitcoin users from the inflationary effects of the fiat currency to which it must be converted to be used in an economy.

Gains made regardingmarket value might offer inflation protection for investors, but they don’t for the cryptocurrency’s intended use as a payment method.

Impact of Halving on Bitcoin Demand

When halving reduces new bitcoins,demand typically rises. This can be noted by looking at Bitcoin’s price after each previous halving event—it has typically risen. The historic increase in demand has driven price increases, which is a good thing for investors and speculators.

The Role of Halving in Bitcoin Investment

Bitcoin started as a payment method aimed at eliminating regulatory agencies or third parties in transactions.

It became popular with investors once it was noted that there was the potential for gains. Investors poured into the new asset space, creating demand that the cryptocurrency’s designers may not have anticipated. For investors, a halving represents a reduction in the new coin supply, but it also offers the promise of an increase in investment value if the event’s effects remain the same. This places Bitcoin investing into the realm ofspeculation because those invested in the cryptocurrency are hoping for gains.

How Halving Impacts Bitcoin Mining

Miners—individuals, groups, or businesses—focus onprofitable mining. Despite Bitcoin's price changes, mining stayed profitable, evident from large businesses continuing to operate.

However, a halving cuts mining rewards, so the endeavor becomes less profitable with each halving if prices remain the same or drop. The large-scale mining facilities needed to remain competitive require enormous amounts of money and energy. The equipment and facilities need maintenance and people to conduct it. They must upgrade mining capacity to stay competitive.

For instance, Marathon Digital Holdings, one of the world’s largest mining firms, increased its Bitcoin holdings to 16,930 and its fleet of Bitcoin miners to 231,000 in February 2024. This brought the firm’s hash rate to 28.7 trillionhashes per second (about 5% of the network’s total hash rate as of May 2024).

The increase in production capacity and holdings was likely due to anticipations of the April 2024 halving and the amount of hashing power required to remain competitive while having the liquidity necessary to finance its operations.

For smaller miners, a decrease in the reward means lower chances. Miners who are part of a mining pool will likely experience smaller rewards, even if prices increase—the reward is being cut in half, but Bitcoin’s price is not likely to double unless there is a drastic market event.

The Effects of Bitcoin Halving on Consumers

Bitcoin consumers may feel the impact of halving on their holdings' value. Those who buy Bitcoin to make purchases will generally only be affected by price fluctuations, which may or may not remain similar to those before the halving occurred.

For those using Bitcoin forremittances, a halving means the same thing as it does for shoppers. The value of their remittances will depend on Bitcoin’s market price after the halving event.

Upcoming Bitcoin Halving: Important Dates and Details

The next halving is expected to occur in 2028, when the block reward will fall to 1.625 BTC. The first Bitcoin block reward was 50 bitcoin. There have been four halvings since 2009. These halving dates were:

• Nov. 28, 2012, to 25 bitcoins
• July 9, 2016, to 12.5 bitcoins
• May 11, 2020, to 6.25 bitcoins
• April 20, 2024, to 3.125 bitcoins
  

By May 2024, about 19.7 million bitcoins circulated, with 1.3 million left for mining.

Considerations for Investing in Bitcoin During Halving Periods

Many investors have high expectations for halvings because, in the past, prices generally trended upward after the event. Historically, these trends evolve slowly over months or years, with no guarantee Bitcoin will follow the same pattern. So, whether you invest in Bitcoin before, at, or after a halving depends on market conditions at the time, your outlook, and your risk tolerance level.

For instance, the latest halving was unique among halvings in that Spot Bitcoin ETFs were approved by the U.S. Securities and Exchange Commission (SEC) only a few months before the event. Investors and speculators flocked to these new exchange-traded funds (ETFs) or moved capital from the once-popular Bitcoin ETF Trusts to them.

One month after the halving, the market shifted again, and prices dropped. The ETFs experiencedsignificant outflows at the beginning of May, followed by a similar level of inflows—in mid-May, the market became moreoptimistic about Ether ETF while Bitcoin’s price soared.

For now, predicting the market's future remains guesswork.

The Bottom Line

A Bitcoin halving reduces new Bitcoin circulation by half, with the reward system set to continue until the maximum supply of 21 million bitcoins is reached in 2140. The latest halving on April 20, 2024, reduced the mining reward to 3.125 bitcoins per block. Each halving event impacts the Bitcoin network by increasing scarcity and potentially driving up demand and price, though they also make mining less profitable for smaller operations, leading to potential consolidation in the industry. Investors should keep in mind that while historical trends have shown price increases following halvings, future outcomes are uncertain and investing in Bitcoin remains speculative.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own Bitcoin.

Correction—Feb. 11, 2025:The date of the last Bitcoin halving has been corrected.