Bitcoin network on Friday night cutting bonus incentives for miners half for the fourth time in its history.
Celebration eventtakes place approximately every four years as stipulated in the Bitcoin code, designed to slow down the issuance of bitcoins, thereby creating a scarcity effect and allowing the cryptocurrency to maintain digital gold-like qualities.
There may be some speculative trading during the event itself. JPMorgan said it expected to see some downside in bitcoin post-halving, and Deutsche Bank said it “does not expect the price to increase significantly.” However, the impact could be greater months from now, even as bitcoin continues to grow. profit trend is decreasing from halving date to cycle peak. Two important things to pay attention to are block rewards and hash rate.
“While the upcoming Bitcoin halving will create a supply shock like previous ones, we believe its impact on crypto prices could be magnified,” said Mark Palmer of Benchmark. increased due to the simultaneous demand shock created by the emergence of bitcoin spot ETFs.”
The bigger direct impact will be on the miners themselves, he added. They are the people who operate the machines that do the work of recording new blocks of bitcoin transactions and adding them to the global ledger, also known as the blockchain.
“Miners with access to inexpensive, reliable energy sources are well positioned to navigate post-halving market dynamics,” said Matthew Galinko of Maxim. “Some miners, many unlisted, may exit the market due to inefficient access to power, machinery and capital. Miners with relatively expensive capital and energy will likely find opportunities following the consolidation and potential disruption caused by the halving.”
Block reward
Miners have two incentives for mining: transaction fees voluntarily paid by senders (for faster settlement) and mining rewards – 3,125 newly created bitcoins, or about $200,000 as of Friday night, when mining reward reduced from 6.25 bitcoins. The initial offer is 50 bitcoins.
Reducing block rewards leads to a reduction in bitcoin's supply by slowing the rate at which new coins are created, helping to maintain the idea of bitcoin as digital gold – a finite supply that helps determine its value. Ultimately, the number of bitcoins in circulation will reach 21 million, according to the Bitcoin code. Have about 19.6 million in circulation today.
“Miners use powerful, specialized computer hardware to validate transactions on the Bitcoin network and record them permanently on the blockchain,” said Deutsche Bank analyst Marion Laboure. “This process, called mining, rewards miners with newly minted bitcoins. But with each halving, the reward for mining decreases to maintain scarcity and control the inflation rate of the cryptocurrency over time.”
Hash rate
Historically after halving, the Bitcoin hash rate – or the total computational power used by miners to process transactions on the Bitcoin network – has decreased, causing some miners to be excluded from the market. However, Labore points out that it usually recovers in the medium term.
The network hash rate has been at an all-time high for months as miners try to capture market share ahead of the halving. The growth in Bitcoin hash rate reduces the contribution of individual miners to the network hash rate.
“Over the past three halvings, the network has recovered to pre-halving hash rate levels within an average of 57 days,” she said. “It is also possible that the current elevated bitcoin price could limit this short-term decline in hash rate, as bitcoin miners enjoy record high profits ahead of the halving.”
Palmer said the impact of the halving on the economics of bitcoin miners could “be more than offset over time” if bitcoin's price rally continues to push the cryptocurrency to new highs in the coming months.
