The Bitcoin network on Friday night cut the incentives given to miners in half for the fourth time in history.
This famous event, which takes place approximately once every four years as mandated by the Bitcoin code, creates a scarcity effect by delaying the issuance of Bitcoin, allowing the cryptocurrency to maintain its digital gold-like quality. The purpose is to do so.
The event itself may be subject to speculative trading. JPMorgan expects Bitcoin to see some downside after the halving, while Deutsche Bank said it “does not expect prices to rise significantly.” But even if Bitcoin continues its trend of declining returns from halving to cycle top, the impact could be even greater in the months ahead. Two important things to look at are block reward and hash rate.
Benchmark's Mark Palmer said, “The upcoming Bitcoin halving will cause a supply shock similar to the previous halving, but the simultaneous demand shock caused by the emergence of Bitcoin spot ETFs will cause a negative impact on crypto prices. We believe that the impact could be even more widespread.”
An even bigger immediate impact will be on the miners themselves, he added. They run machines whose job is to record new blocks of Bitcoin transactions and add them to the global ledger, also known as the blockchain.
“Miners with access to cheap and reliable power sources are well-positioned to navigate post-halving market trends,” Maxim's Matthew Garinko said in a note Friday. “Some miners, many of them private, have poor access to electricity, efficient machinery, and capital and may exit the market. We will find opportunities in the wake of potential consolidation and disruption.”
block reward
Miners have two incentives to mine. One is the transaction fee paid voluntarily by the sender (for quick settlement), and the other is the mining reward. The mining reward was reduced from 6.25 Bitcoin, and as of Friday night, the newly minted Bitcoin was worth 3.125 Bitcoin, or about $200,000. The incentive was initially 50 Bitcoins.
A decrease in block rewards will lead to a decrease in the supply of Bitcoin by slowing the pace at which new coins are created, making it possible for Bitcoin to become digital gold (its finite supply helps determine its value). helps maintain the concept of Ultimately, the number of Bitcoins in circulation will be limited to 21 million per Bitcoin code. Approximately 19.6 million copies are currently in circulation.
“Miners leverage powerful specialized computer hardware to verify transactions on the Bitcoin network and permanently record them on the blockchain,” said Marion Labour, an analyst at Deutsche Bank. . “This process, known as mining, rewards miners with newly minted Bitcoins. However, in order to maintain scarcity and control the rate of inflation of the cryptocurrency over time, each halving The rewards for mining will be reduced.”
Historically, after a halving, Bitcoin's hashrate, or the total computational power used by miners to process transactions on the Bitcoin network, has declined, forcing some miners out of the market. Ta. However, Labour noted that it generally recovers in the medium term.
Network hashrate has been hitting new highs in recent months as miners look to grab market share ahead of the halving. The increase in Bitcoin's hashrate dilutes the contribution of individual miners to the network's hashrate.
“Over the past three halvings, the network has recovered pre-halving hashrate levels within an average of 57 days,” he said. “Bitcoin miners are enjoying record profits ahead of the halving, so the current surge in Bitcoin prices could also limit the short-term decline in hashrate.”
Palmer said the impact of the halving on the economics of Bitcoin miners could be “more than offset over time” if Bitcoin's price increases continue to push the cryptocurrency to new highs in the coming months. He said there is.
