The halving lowers the rate at which new bitcoins enter the market and may result in their price increasing; however, other factors may influence it too.
‘Halving’ is an integral feature of bitcoin’s blockchain technology software and occurs every 210,000 blocks or approximately once every four years, serving to dampen bitcoin inflation by creating scarcity.
What is the halving?
The Bitcoin Halving is an event that occurs roughly every four years. At this time, the amount of new bitcoins awarded to miners is cut in half; making it harder for them to find blocks and reap rewards; in turn creating scarcity which drives up prices of this cryptocurrency.
Bitcoin is a decentralized digital currency, meaning that its supply is finite and cannot be created forever. To ensure there remains a finite supply, the amount awarded to miners for finding new blocks each four years is reduced by half through something known as “halving.”
Bitcoin underwent its inaugural halving in 2012, followed by two more in July 2016 and expected to happen again in 2024. Past halvings have caused sudden price surges as demand outstripped supply – however this increase may not always occur immediately.
How does it affect the price of bitcoin?
The Halving Protocol of Bitcoin’s protocol serves to preserve its value over time by maintaining scarcity; fiat currencies tend to lose value due to inflation while Bitcoin seeks to maintain scarcity through scarcity-creation techniques like block rewards. Through its reduced allocation per block, halving helps ensure this outcome.
Since every halving event, bitcoin prices have seen a noticeable spike. This is likely because its reduced supply has resulted in greater competition between miners for limited rewards resulting in higher prices overall.
Note, however, that Bitcoin prices typically increase after halving gradually over time – usually starting a year before and experiencing a small dip after. Gradual increases usually follow over 12-18 months.
How can I trade bitcoin during the halving?
If you’re interested in trading bitcoin, there are multiple approaches available to you. One is purchasing it directly through an exchange; another way involves trading derivatives such as CFDs – these allow for speculation without owning actual coins!
The next Bitcoin halving is scheduled for Spring 2024 and will lower block rewards from 6.25 bitcoins to 3.125 Bitcoins per block, likely leading to an increase in price due to reduced supply.
The purpose of the halving is to slow inflation on the Bitcoin network by decreasing daily bitcoin creation rates to 21 million or below, so as to limit inflation. Lower supply and steady demand typically lead to higher prices; and this same principle holds true with Bitcoin’s halving.
What are the risks of trading during the halving?
Before every halving occurs, there is often speculation that bitcoin’s price will skyrocket due to decreased mining activity reducing demand; however, this does not always occur; recent halvings have taken place against an environment of strong cryptocurrency markets and global economic stability that are unlikely to happen this time around.
Additionally, the halving is expected to lower miners’ incentive to process transactions on the Bitcoin network and thus shift processing power away from BTC towards other cryptocurrencies, potentially diminishing security of the ecosystem.
Volatility tends to rise around major milestones like Bitcoin halvings, making trading increasingly challenging. If you want to speculate on its price, CFDs and direct coin purchasing from exchanges offer two different strategies that might fit better with your trading style and budget. At IG we provide both solutions so you can select which best meets your needs and budget.
