Bitcoin is expected to undergo ‘halving’ around April 20, termed as one of the most hotly anticipated events in the cryptocurrency circuits that has pushed the digit asset’s price recently, according to Bloomberg.
The world’s largest cryptocurrency was trading at $67,317.7 on April 5, recording a decline of 1.76%. The digital asset has gained around 50 percent this year despite going down from its record high of $73,798 achieved on March 14.
It is believed that this year's surge is because of the US Securities and Exchange Commission's January approval of bitcoin ETFs, as well as expectations that the US Federal Reserve will cut interest rates.
However, a price comparison between Bitcoin and its closest rival Ether shows a different story, reflecting sentiments of investors not favouring smaller cryptocurrencies ahead of Bitcoin halving. The ratio of price between the two reached 20, highest since April 2021.
Bitcoins were designed by its pseudonymous creator Satoshi Nakamoto to have a capped supply of 21 million tokens. In its underlying blockchain technology, halving changes the code to reduce the rate at which new tokens are generated. New coins enter the system after miners solve complex mathematical puzzles to build the blockchain and earn rewards, which come in the form of bitcoins. These rewards are halved every four years after 210,000 new tokens are added to the system.
The last ‘halving’ happened on May 11, 2020, after which the prices rose 12 percent in the following week. This month’s event will be the fourth since 2012 and the reward will come down from 6.25 per 10 minutes to 3.125 per 10 minutes. In 2009, miners received 50 bitcoins in every 10 minutes.
This process will likely end after 21 million tokens are reached and according to some estimates it is expected to happen around 2140.
Will prices go up?
Data suggests it is hard to answer. The prices rose 12 percent after the previous event in 2020, while the 2016 event saw the prices rise just 1.3 percent. It is believed that less availability of the coins should hike the prices. However, some claim that the current prices have already factored in the upcoming event and there may not be any heavy movement.
Preparing for the event
Bitcoin mining requires massive amount of energy and specialised computers to validate transactions on the blockchain and earn rewards. In anticipation of halving, several mining firms in the US have placed orders worth over $1 billion for new updated machines since February 2023, according to reports.
Around 6,000 Bitcoin mining machines are also set to get updated with the most efficient technologies to prepare them for halving. Meanwhile, some 60,000 S19 machines (most common machine used for mining) in the US are being moved to countries in Africa and South America, where electricity is cheaper, to recover some of the investments.
Mining firms are also competing against each other to secure more machines to ensure better margins as the revenue takes a dip after halving. In March, Marathon Digital Holdings, one of the biggest mining firms in the US, said it will buy a 200 megawatt data centre in Texas for $87 million.
“We have the need for more capacity, we are reaching that limit now as we speak but we will continue to be acquisitive in this space. That (halving) has a direct impact on our cost to mine, which lowers our break-even point,” Fred Thiel, Marathon’s chief executive, told Bloomberg.
With inputs from Bloomberg
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