What You Need To Know Ahead of The Bitcoin Halving

The bitcoin halving—in which the amount of newly issued bitcoin created roughly every ten minutes is cut in half—is expected to take place on Friday or Saturday. In the past, this event has been followed by a significant rise in the price of bitcoin, but analysts are divided over whether that will occur this time around.

Bitcoin (BTC) already hit all-time highs above $73,000 last month, the first time record highs have been hit ahead of a halving event, though the price has retreated in recent weeks. On Thursday morning, bitcoin was trading around $63,500, after dropping below $60,000 on Wednesday.

What’s Going to Happen at the Halving?

After the halving, the incentive for bitcoin miners and the pace of issuance of new bitcoins will come down by half. This is one of the rules of the network that was “set in stone” by Bitcoin creator Satoshi Nakamoto.

Simply put, bitcoin mining is the process by which all transactions on the Bitcoin blockchain are verified and new bitcoins are minted. Miners first to successfully validate a block containing transaction information are rewarded for their effort.

This reward is made up of both a block subsidy and transaction fees. The block subsidy is newly created bitcoin that is entering existence for the first time and has historically made up the majority of the value of the block reward.

While the block reward was originally 50 bitcoin when the network launched in January 2009, it has since halved after every 210,000 blocks, or roughly every four years, on a predetermined schedule. After the upcoming halving, block reward will drop to 3.125 bitcoin from the current 6.25 bitcoin.

While new blocks are intended to be found roughly every ten minutes, block times can vary over the short term based on the amount of computing power that is pointed at the network. That said, block times are recalibrated to the ten minute target window roughly every two weeks via mining difficulty adjustments.

What Does the Halving Mean for Bitcoin’s Price?

Even though the general schedule of the halvings is known to the market beforehand, the 50% drop in the regular creation of new bitcoin is thought to lead to an alteration in the crypto asset’s supply and demand dynamics. The bitcoin price has reached a new all-time high in the months following each of the previous three halving events.

Analysts say that this bitcoin halving is different for a number of reasons and that a bitcoin rally may not ensue.

The largest cryptocurrency by market capitalization hit a new all-time high this four-year cycle prior to the actual halving taking place for the first time in its history. Bitcoin demand from spot bitcoin exchange-traded funds (ETFs) was largely credited for the rally. Many analysts believe that a demand-supply mismatch thanks to greater demand from the ETFs and limited supply after the halving, could propel bitcoin prices higher.

Analysts at Deutsche Bank say that the halving is “partially priced in” and that they do not “expect prices to increase significantly following the halving event.”

Other analysts are worried that higher-for-longer interest rates make riskier assets such as cryptocurrencies less attractive as Treasury yields remain elevated.

“Whether BTC halving will next week turn out to be a ‘buy the rumor, sell the news event’ is arguably less impactful on BTC’s medium term outlook, as BTC price performance will likely continue to be driven by the said supply-demand dynamic and continued demand for BTC ETFs, which combined with the self-reflexive nature of crypto markets is the primary determinant for spot price action,” Goldman Sachs analysts wrote in a note last week, according to Coindesk.

Bitcoin is certainly suffering some pre-halving jitters. After creating multiple price records in March, the price of bitcoin has been in a more pronounced downtrend since April 8. However, this is not the first time this has happened, as the bitcoin price fell preceding the halving that took place in 2016 before eventually reaching a new all-time high within the next year.

How Bitcoin Halving Can Affect Some Stocks

In theory, there are three types of stocks that could by affected by the bitcoin halving—miners, companies that hold bitcoin and bitcoin trading platforms.

Bitcoin Mining Stocks

As the incentive for mining gets cut in half it threatens the revenues and consequently the stock prices of bitcoin miners.

Shares of bitcoin miners such as Marathon Digital (MARA), Riot Platforms (RIOT), Hut8 (HUT), Cipher Mining (CIFR) and TerraWulf (WULF) each lost about one-fifth of their value over the eight days following the start of the bitcoin downturn on April 8, though they’ve gained some ground in recent days.

Some analysts suggest that the increase in the price of bitcoin may be able to offset the impact of fewer bitcoin rewards, but miners may need to look for ways to make up for the gap over the long term ahead of the next halving cycle.

Bitcoin Investors and Trading Platforms

As of March 18, MicroStrategy (MSTR) held more than 214,246 bitcoins in its portfolio, and that large position can have an impact on its own stock price if bitcoin trends lower. MicroStrategy shares have last a quarter of their value so far this month.

Any volatility around halving would mean higher trading volumes, something that could affect trading platforms such as Coinbase (COIN) or Robinhood (HOOD). However, even if trading volumes pick up this week, analysts at Needham said the impact of the halving may be overshadowed by bigger bitcoin volume events for the two trading platforms, Barron’s reported.