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Bitcoin halving: When will it happen and what does it signify for the price?

Representations of cryptocurrency Bitcoin are shown in this illustration photo taken in Paris, France, March 9, 2024

LONDON, March 13 (mod1s) - As bitcoin's price hits new heights, focus is shifting to its anticipated "halving" and whether it is playing a part in its ascension. 

Depending on where you sit, the halving is a critical event that will burnish bitcoin's worth as an increasingly rare commodity, or nothing more than a technical adjustment pumped up by speculators to raise its price. 

But what precisely is it, and does it really matter? 

WHAT IS IT? 

The halving is a tweak in bitcoin's core blockchain technology, meant to lower the pace at which new bitcoins are produced.

Bitcoin was intended from its start by its pseudonymous inventor Satoshi Nakamoto to have a limited quantity of 21 million coins. 

Nakamoto built the halving into bitcoin's code and it operates by lowering the pace at which new bitcoin are introduced into circulation. 

So far, around 19 million tokens have been distributed. 

HOW DOES IT HAPPEN? 

Blockchain technology includes producing recordings of information - called 'blocks' - which are added to the chain in a process called 'mining'. 

Miners employ processing power to solve complicated mathematical challenges to develop the blockchain and receive rewards in the form of new bitcoin. 

At the halving, the quantity of bitcoin available as incentives for miners is slashed in half. This makes mining less lucrative and reduces the generation of new bitcoins. 

(For a graphic explanation of how blockchain works, go here.) 

WHEN WILL IT HAPPEN? 

There is no specific date, but it is scheduled to take place in late April.

The blockchain is constructed such that a halving happens every time 210,000 blocks are added to the network. This implies it occurs about every four years. 

WHAT'S IT GOT TO DO WITH BITCOIN'S PRICE? 

Some bitcoin advocates think that bitcoin's scarcity provides it worth. 

The smaller the supply of an item, then all other things being equal the price should climb when people attempt to acquire more. 

So limiting supply of bitcoin should raise the price, some experts and dealers argue.

Others question the argument, arguing that any effect would have already been included in to the present pricing. 

The supply of bitcoin to the market is also primarily down to crypto miners but the industry is opaque, with statistics on inventory and supplies sparse. 

If miners sell their reserves, it might put downward pressure on prices. 

Knowing what is driving a crypto surge is tricky, not least since there is significantly less openness about who is purchasing and why compared to other markets. 

The most prevalent explanation suggested for this year's spike is the U.S. Securities and Exchange Commission's January approval of bitcoin ETFs, as well as anticipation that central banks may slash interest rates. 

But in the speculative realm of crypto trading, explanations made by experts for swings in bitcoin's price may snowball into market narratives that can become self-fulfilling. 

WHAT ABOUT PREVIOUS HALVINGS? 

There's no evidence to indicate that prior halvings have led bitcoin's price to climb. 

Still, dealers and miners have analyzed prior halvings to try to get an advantage. 

When the latest halving occured on May 11, 2020, the price jumped roughly 12% in the following week. 

Later in the year, bitcoin started a rapid rebound, although there were numerous of theories - including lax monetary policy and stay-at-home retail investors spending extra cash on cryptocurrencies - for this and no actual proof the halving was driving it.

An previous halving happened in July 2016. Bitcoin increased roughly 1.3% in the next week, before falling a few weeks later. 

In short: it's impossible to separate the influence, if any, halvings may have had in the past or foresee what may happen this time around. 

Regulators have frequently cautioned that bitcoin is a speculative market, fueled by hype and "FOMO" (Fear Of Missing Out), and risks actual damage to investors, even as they concurrently authorize bitcoin trading instruments.


Source: https://www.reuters.com/

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