The Bitcoin Halving Explained

Bitcoin’s 3rd halving is coming on May 12th, so this next week is going to be really exciting.

We’ve been getting a lot of questions during the last couple of weeks about the Bitcoin Halving, so we thought we’d tackle the most commonly asked ones.

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What is a ‘halving’ and what is all the fuss about?

The ‘halving’ is when the “Block Reward” paid to miners when they mine each block (which is where new bitcoins come from) is cut in half.

halving

The first was on 28th Nov 2012 when the block reward went from 50 bitcoins / block to 25 bitcoins / block. The second went from 25 to 12.5. The third halving will see the reward change from 12.5 to 6.75.

Will the value of Bitcoin halve? (will I have half as many coins?!)

No. This is a common misunderstanding. Unlike a stock split, the number of bitcoins in existence doesn’t halve – only the number of newly mined coins will decrease.

Likewise, the price of bitcoin won’t halve. Bitcoins value is determined by the market – if the market demand increases the price will go up – if it decreases the price will go down. After the halving, the total number of bitcoin mined each day will be half as much as before, so theoretically the price might rise.

So now is the time to buy?

Not necessarily. The halving is a well known event – theoretically the market already understands the value of each coin after the halving and so the price is about right. If you look at the above graph, immediately after the event the price on both two previous occasions dipped slightly…. and then rocketed up!

Should I sell Bitcoin?

We always recommend to hold your Bitcoin… over the long term it will most likely continue to go up. A short term sell might be prudent if the price movement of previous halvings repeats itself. However, it is always safest to hold.

Why is the third halving so important?

At this point, 87% of all bitcoins have been mined. The current rate of mining means that Bitcoin has an ‘inflation rate’ of about 3.6% – higher than the inflation rate of most countries, but still reasonable. After the next halving, the rate will be 1.8% and decreasing every year.

What about altcoins?

Some Altcoins, particularly those based on Bitcoin, also have halvings – e.g. Litecoin has also had 2 halvings – the last was on 5 Aug 2019. However, due to Bitcoin’s market dominance, Bitcoin’s halvings are big events.

The price of altcoins during halving events may go up or down as people rebalance their portfolios.

Conclusion

Next Tuesday morning (about 3am UTC / 4am BTC) is going to be exciting as we finally move into a truly deflationary era for Bitcoin!

As always, if you need to buy or sell, Solidi can help you get it done quickly and easily.

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