indicatorThe Owl

It's halvening

Major milestone ahead for bitcoin

By Miranda Mantey, ATB Economics 18 April 2024 2 min read

With the announcement of the first spot Bitcoin exchange-traded funds (ETF) in the United States earlier this year, we’ve seen Bitcoin prices holding above US$70,000.  This surge in interest in Bitcoin as an investment option precedes a significant event in the cryptocurrency world known as the "halving."

The halving, occurring roughly every four years, halves the rewards given to Bitcoin miners. Wait… Let’s back up for a minute… Bitcoin, miners, rewards? 

Blockchain technology is the fundamental technology behind not just Bitcoin but numerous other cryptocurrencies, acting as a secure and transparent transaction record. Its decentralized nature—comparable to a vast, shared spreadsheet across a network of computers—ensures that each computer, or node, holds a copy of the entire blockchain. As transactions occur, they are recorded on all copies simultaneously.

This distributed ledger requires a network of computers to validate transactions. For Bitcoin, miners fulfill this role, using powerful computers to solve complex mathematical puzzles. The first to solve a puzzle gets to add a new block of transactions to the blockchain, receiving Bitcoin as a reward. This process not only secures the network but also introduces new Bitcoin into circulation.

Miners currently receive 6.25 Bitcoins for each block mined, a figure set to decrease to 3.125 Bitcoins soon. This reduction occurs every 210,000 blocks, with the next halving expected between April 18 and 21 this year. The halving aims to control inflation algorithmically by slowing the creation of new Bitcoins. Historically, halving events have led to price increases due to reduced supply in the market and unchanged demand. For example, the 2020 halving preceded a price surge of 458% within nine months.

However, the impact of this year's halving could differ. Although the price of Bitcoin at predefined intervals post-halving may demonstrate increased financial returns (as shown in today's chart), Coindesk Research observes diminishing returns following each halving when comparing the price at the time of the halving to its cycle peak. Price increase after the 2012, 2016, and 2020 halvings were 93x, 30x, and 8x respectively when evaluating for cycle peak.

This means the increase might not be as significant as it historically has been. This year's event might be different, though, due to increased institutional interest in Bitcoin through new products such as the spot Bitcoin ETFs in the United States.

The halving also poses challenges for Bitcoin miners, whose earnings will halve while operational costs are likely to remain stable. The industry hopes for a price increase sufficient to maintain profitability, with some estimates suggesting a necessary price floor of $80,000.

In Alberta, home to a number of cryptocurrency miners, this development holds particular significance. Alberta has an abundant supply of natural gas and rising renewable capacity in its deregulated electricity system—a critical factor given that energy is the costliest input in crypto mining. Miners are also on the quest for more affordable and environmentally friendly energy solutions. Globally, Canada stands as the fourth-largest contributor of computing power to the blockchain, thanks in part to Alberta. 

The future of Bitcoin and cryptocurrencies remains uncertain, but the halving is a pivotal event programmed into Bitcoin's architecture from the start. Keeping informed about these developments is crucial with cryptocurrency increasing in popularity.

Answer to the previous trivia question: American financier and co-founder of U.S. Steel John Pierpont (J.P.) Morgan was born on April 17, 1837.

Today’s trivia question: Which province had the highest level of labour productivity in 2022?

The 2020 Bitcoin halving returns shot up by 458% at the 9-month mark

The 2020 Bitcoin halving returns shot up by 458% at the 9-month mark

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