Let's discover together, in this dedicated special, what the Bitcoin halving is and why there is so much talk about it: what will it mean in today's financial market?
Those who are not experts in the current financial market will have found themselves a little taken aback by reading online about the halving of Bitcoin. What is that? To understand it better, let's borrow the rhetorical figure of metaphor. We think of Bitcoin as a cake that is baked in limited quantities. Every time a new one (a new block) is created, the bakers (miners) receive a slice as a reward for their work. The Bitcoin halving is, literally, like halving the size of this reward slice every few years.
What are the implications of the Bitcoin halving?
The event itself it is predictable because it is programmed directly into the Bitcoin code and occurs exactly every four years, with the aim of reducing the rate of creation of new Bitcoins. And why on earth, you might ask. Simply, the goal is to control inflation and, therefore, influence the price of the cryptocurrency. Let's try to simplify this logical process:
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The less Bitcoins are created, the rarer and more valuable those that exist become
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Greater rarity inevitably leads to greater demand, and therefore, theoretically, a higher price
What factors influence the value of the currency?
This last step, in reality it is not that immediate. Although it is true that, historically, halvings have coincided with periods of increases in the price of Bitcoin, the market is now so complex and stratified that its reaction is inevitable, but still influenced by multiple factors. First we could mention market sentiment and the general confidence in cryptocurrencies among potential buyers, as a climate of fear or uncertainty can greatly dampen the potentially positive reaction to the halving.
Above all, however, they intervene to influence the purchase of bitcoins macroeconomic events, such as interest rates, inflation and the economic growth of the country of reference, which actually affect investments in general, not just those in cryptocurrencies. Periods of recession lead investors to take refuge in more stable assets, while growing countries or with greater economic stability could favor riskier investments, such as those of cryptocurrencies.
Other factors that influence investments in Bitcoin can be:
The supply-demand relationship
Regulation
The media and marketing
Why is the Bitcoin halving important?
So let's summarize the reasons why the bitcoin halving is so important:
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Reduces the supply of Bitcoin: With fewer new Bitcoins created each year, their total supply becomes more limited. This, in theory, should increase the demand and price of Bitcoin
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Check inflation: Just like traditional currencies, uncontrolled inflation can erode the value of a currency. The halving helps keep Bitcoin inflation in check by limiting the growth of its supply.
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Influences market sentiment: halvings are often greeted with optimism by investors, who see the event as a positive factor for the future of Bitcoin. This positive sentiment can lead to an increase in demand and price.
A little piece of history: when did the first Bitcoin halving happen?
Il Bitcoin's first halving occurred on July 28, 2010, when the mining reward went from 50 to 25 Bitcoin per block. Since then, two more halvings have occurred: on July 9, 2016 (reward halved to 12.5 Bitcoin) and May 11, 2020 (reward halved to 6.25 Bitcoin). The next halving is scheduled for this April, precisely for next week.
Implications for miners
Halving has a significant impact on miners, the computers that verify transactions and add new blocks to the blockchain. With the reward halving, miners see their Bitcoin earnings halve. This could lead some less efficient miners to close their operationsfurther centralizing mining in the hands of larger, more powerful operators.
Some advice for the next Bitcoin halving
Below we give you some general advice on what to do at the next halving, if you intend to invest in cryptocurrencies:
Do research: It is essential to understand what halving is and how it could affect the price of Bitcoin, before making any investment decisions. Don't go blindly!
Assess the risks: Investments in cryptocurrencies are very speculative and the risk of losing money is high. Only invest money that you can truly afford to lose.
Adopt an investment strategy: Define an investment plan and follow it to the letter. Never invest more money than you can afford to lose and don't let market emotions influence you.
Choose a reliable exchange: If you decide to buy Bitcoin, make sure you use a reliable and secure cryptocurrency exchange.
Conclusions
This is all we had to tell you about the Bitcoin halving: what it is and what basic strategies to adopt, in addition to the always recommended caution. Let us know what you think below in the comments and continue to follow us here on techgameworld.com!