Learn about deflationary changes

Main contents

• Bitcoin halving – an event that occurs approximately every four years – is an important milestone that slows the growth rate of BTC supply by cutting miners’ rewards in half.
• By activating bitcoin’s scarcity and deflationary mechanisms, halving increases the currency’s appeal as a form of “digital gold” while also promoting discussion about it in the crypto space. , bringing digital assets into the spotlight to help drive change.
• This year’s halving is special because we are seeing the combination of three main stories: a surge in capital flows into spot exchange-traded funds (ETFs), a boom in DeFi activity, and the halving itself. . Indeed, 2024 will be a particularly important year for Bitcoin.

Taking place approximately every 4 years, Bitcoin halving is one of the most anticipated events for the world’s first blockchain network and the broader cryptocurrency ecosystem. As the name suggests, halving reduces the amount of bitcoin rewarded to miners by half. In this way, the halving triggers a deflationary mechanism that reduces the rate at which bitcoin supply increases over time, thus making BTC more scarce and contributing to BTC’s “digital gold” narrative.

As the next Bitcoin halving event approaches, and is expected in the second half of April 2024, the market is eagerly awaiting its impact. However, the mechanisms behind this important event and its potential effects are often overshadowed by the surrounding gravity. In today’s article, we will learn about the underlying dynamics of Bitcoin halving to better understand the impact this event has on market trends as well as what it means for the industry as a whole.

What is Bitcoin halving?

Essentially, Bitcoin halving is a mechanism that cuts the rewards Bitcoin miners receive by 50% for verifying and adding new transactions or blocks to the blockchain. This event occurs every 210,000 blocks are mined, approximately every 4 years. Through this mechanism, the finite supply of bitcoin (capped at 21 million) is put into circulation at a decreasing rate, thus causing a deflationary effect on the cryptocurrency. This characteristic sets BTC apart from traditional inflationary fiat currencies.

This deliberate reduction in supply growth, combined with BTC’s fixed maximum supply of 21 million units, creates scarcity that drives bitcoin’s value and appeal as a form of “technical gold”. number” increases. Unlike traditional fiat currencies whose supply is regulated by central banks, BTC’s token supply is fixed and unchanging. Halving is an important part of Bitcoin’s economic model, designed to control the supply of BTC and ensure that reaching the maximum supply limit occurs at a predictable rate over time.

The first halving event took place in November 2012, when the block reward was reduced from 50 to 25 BTC. Then, in July 2016, the block reward was halved to 12.5 BTC. The most recent halving event – in May 2020 – the block reward dropped to the current 6.25 BTC mark. During the fourth halving event – scheduled for April 2024 – the block reward will be 3,125 BTC.

Market dynamics

Bitcoin’s cyclical halving events often represent important turning points in the cryptocurrency’s market dynamics. Accordingly, every halving event in history has had a strong impact on BTC price. This is largely due to the basic economic principles of supply and demand. Each halving, the rate at which new bitcoins are added to the circulating supply slows down. With this reduction in supply, in the face of stable or increased demand, the price of bitcoin will increase, all other factors remaining the same.

In the past, BTC has experienced impressive price increases in the 6 months following each halving. On November 28, 2012 – the day of the first halving event – bitcoin price was around 12 USD. By the end of May 2013, the price of bitcoin had increased to around 130 USD. On July 9, 2016 – the day of the second halving – the price of Bitcoin was around $660 before rising to around $900 in early January 2017. Ultimately, the price of Bitcoin was around $8,600 at the time of the event. The most recent halving event was on May 11, 2020. 6 months later, around the beginning of November 2020, the price of Bitcoin increased to over 15,700 USD, showing a significant growth in value after the halving event.

In addition, the year following the Bitcoin halving event, the market often records a wave of price increases. A year after the first halving in 2012, BTC experienced a sharp increase that peaked in 2013. The second halving in 2016 was followed by a price increase in 2017. Ultimately, the price bitcoin reached its previous all-time high in November 2021 – one year after the most recent halving in 2020. Another interesting trend to note is bitcoin hitting a new all-time high around 4 years between each halving. During the 2020 to 2024 cycle, this new all-time high was reached in October 2022, when Bitcoin crossed the $66,000 mark, although this mark has since been broken in 2024.

These dynamics highlight the market response to reduced new BTC supply, with increased demand causing the cryptocurrency’s value to rise. While price changes are not always seen immediately, the general trend is for prices to increase significantly with each halving cycle. However, it’s important to remember that past performance does not guarantee future results, as there are countless other market factors at play simultaneously. It remains to be seen whether this bullish trend will continue during the next halving event.

Impact on mining operations

Unfortunately for Bitcoin miners, the halving reduces the rewards for processing transactions and securing the network, essentially doubling the cost of mining per token. Every halving, miners must reassess the balance between performance and profitability in mining operations, which may cause some miners to leave the market. A decrease in the number of miners could negatively affect the processing capacity of the Bitcoin network, especially in the short term.

However, in the past the Bitcoin network has shown the ability to cope with this problem. Every time the halving event takes place, large-scale mining companies often look for opportunities to acquire smaller-scale competitors. We also often see more mergers in the market as mining companies try to consolidate the size of their operations. So, although the number of miners may decrease, the overall scale of mining operations generally remains balanced.

In a context of rising costs but falling performance, halving could also motivate miners to overcome these challenges by innovating. Therefore, each halving event unintentionally becomes a catalyst for advances in blockchain technology, helping to alleviate the impact of a reduced number of miners. Additionally, miners can choose to switch to altcoin mining or exploit other revenue streams in the cryptocurrency world, potentially helping to maintain balance in the entire mining ecosystem.

Wider impact on the industry

In addition to short- and long-term market dynamics, Bitcoin halving could create landmark changes in the cryptocurrency sector and beyond. Bitcoin halving serves as a prominent event in the industry, sparking new discussions about the future of cryptocurrency and challenging traditional financial models. Each halving event will promote awareness and dissemination of knowledge about cryptocurrencies. They thereby pave the way for broader cryptocurrency adoption, especially as institutional interest in Bitcoin continues to grow.

Deflationary changes further strengthen the argument for bitcoin as “digital gold” or a safe-haven asset , introducing a potential asset protection channel against the traditional inflationary economic model. Additionally, bitcoin’s value is not directly correlated with traditional financial markets and it is not influenced by any central bank, thus somewhat insulating it from some of the economic changes that affect it. to fiat currency. These factors could make BTC a potential store of value even in times of economic uncertainty, and the halving helps reinforce this narrative.

Bitcoin halving 2024

As Bitcoin’s fourth halving event approaches, one can clearly feel the atmosphere of anticipation. This year’s halving is very special because it takes place in the context of a series of other important events in Bitcoin and the crypto ecosystem. First, the launch of US-based bitcoin spot exchange-traded funds (ETFs) has been extremely successful in skyrocketing BTC demand and expanding the currency’s reach. These funds have attracted more than $11.9 billion in net inflows since launching in January 2024 – a remarkable achievement that marked the most successful ETF launch in history.

Second, the Bitcoin network has recently seen an explosion of decentralized finance (DeFi) and layer 2 (L2) activity, largely stemming from the popularity of the Ordinal protocol and Bitcoin inscription . In addition to being a store of value, Bitcoin’s functionality is very limited, so one of the currency’s most persistent challenges is scalability. Unlike more flexible blockchains like Ethereum, Bitcoin lacks advanced smart contract functionality, thus limiting its ability to accommodate L2 and DeFi solutions. The launch of the Ordinal protocol in early 2023 – allowing the minting of fungible tokens and non-fungible tokens on Bitcoin – has taken on-chain activity to a new level and driven innovation within the network. Since then, Bitcoin-based DeFi solutions have made increasing progress with many teams developing L2 networks for Bitcoin. Many of these projects are expected to launch in the coming months, along with other innovative Bitcoin DeFi projects.

Indeed, with the combination of three major stories, 2024 is expected to become a pivotal year for Bitcoin. Taking place amid booming DeFi activity and BTC spot ETFs, this halving event will be very special. We have seen prices increase significantly due to demand and liquidity from spot ETFs, with Bitcoin reaching new all-time highs multiple times to date. Most recently, bitcoin set a new record after surpassing the $73,000 mark on March 13. Interestingly, this year marks the first time BTC has reached a new all-time high before a halving event. As mentioned above, previous BTC price spikes usually only occurred after the halving event and BTC would reach its highest level ever recorded in the following year. Given the peculiarities surrounding this halving event, it remains to be seen whether BTC price will still follow its previous trajectory.

Halving Horizons

At Binance, we see the halving as an opportunity to reflect on the past development and future roadmap of the cryptocurrency ecosystem. To celebrate this important event, we have launched the exclusive “Halving Horizons” campaign, with a total prize value of over 500,000 USD! Users can participate in a variety of incentives, designed to help users increase their crypto knowledge while earning and winning rewards.

Not only welcoming the halving event, this campaign is also an opportunity to learn the importance of Bitcoin halving through thoughtfully designed activities along with educational content to clarify the development of the ecosystem . With a great bonus fund including BTC, SATS, FDUSD and even a brand new Tesla, don’t miss the opportunity to win these extremely attractive rewards!

For more details, please see the announcement in our Halving Horizons blog.

The impact extends beyond the Bitcoin network

Essentially, Bitcoin halving reduces the rate at which BTC is created, making the coin more scarce and valuable. However, the impact of this event extends beyond the Bitcoin network to the rest of the cryptocurrency industry and the broader financial system. The halving represents Bitcoin’s commitment to a stable and solid monetary policy controlled by code – a far cry from the sometimes less predictable decisions seen in traditional financial systems. This change brings a fresh perspective, hinting at a future where cryptocurrencies help make the monetary system more transparent. At that time, each halving will mark a new chapter in the development of the modern financial system.

Read more

• What will happen to your Bitcoin after the Halving?
• Get ready for Bitcoin’s halving: 3 simple ways to buy BTC and other Crypto coins
• Binance Research: Explore Bitcoin’s Growth

Disclaimer: Digital asset prices are subject to market risks and price fluctuations. The value of your investment may go down as well as up and you may not get back the amount you invested. You are solely responsible for your investment decisions and Binance is not responsible for any losses you may incur. Past performance is not a reliable indicator of future performance. You should only invest in products that you are familiar with and understand the risks involved. You should carefully consider your investment experience, financial situation, investment objectives and risk tolerance and consult an independent financial advisor before making an investment. This material should not be construed as financial advice. For more information, please see our Terms of Use and Risk Warning.