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1. What is halving?
Halving is a programmed event in the cryptocurrency blockchain, where the reward for miners for adding new blocks is cut in half. This mechanism is built into the code of cryptocurrencies like Bitcoin, Litecoin, and Zcash to control issuance and prevent inflation.
- How does it work?
Halving occurs after a fixed number of blocks (for example, every 210,000 blocks for Bitcoin) or time intervals (approximately every 4 years). After the event, miners receive half as many coins per block. For example, for Bitcoin, the reward decreased from 50 BTC (2009) to 3.125 BTC (2024).
2. Objectives of halving
- Controlling inflation: By limiting the issuance of new coins, halving simulates scarcity similar to gold mining. This protects the cryptocurrency from devaluation, unlike fiat currencies that can be printed endlessly.
- Maintaining value: A decrease in the supply of new coins increases the value of existing ones. For example, Bitcoin has a limit of 21 million coins, making it 'digital gold.'
- Stimulating technology: Miners are forced to optimize equipment and energy costs to maintain profitability.
3. Impact on price
Historically, Bitcoin halving correlates with price increases, although there is no direct causal relationship. Examples:
- 2012: Price rose from $12 to $1,100 in a year.
- 2016: Rise from $650 to $3,000 in a year.
- 2020: From $8,600 to $58,000 in 12 months.
- 2024: After the April halving, the price fluctuated around $64,000–$65,000, but forecasts range from $42,000 (J.P. Morgan) to $150,000 (Standard Chartered).
Factors weakening the impact of halving:
- Increase in total trading volume (in 2025 - $72.8 billion per day vs. $20 million in 2014).
- The dominance of speculators over miners in shaping demand.
4. Risks and challenges
- Departure of miners: A reduction in rewards may make mining unprofitable. For example, the cost of producing Bitcoin after the 2024 halving rose to $53,000, threatening small mining companies.
- Decrease in hash rate: A reduction in network power slows down transaction processing (Bitcoin - 7 transactions/sec. vs. 24,000 for Visa).
- Market volatility: Halving attracts speculators, which amplifies price fluctuations.
5. Examples of other cryptocurrencies with halving
- Litecoin (LTC): Halving every 840,000 blocks (~4 years). The last one occurred in 2023, with a reward of 6.25 LTC per block.
- Zcash (ZEC): The event occurs every 4 years, the last one in 2024.
- Bitcoin Cash (BCH): The mechanism is similar to Bitcoin but with adjusted parameters.
6. Strategies for investors
- Buying before halving: Historically, buying Bitcoin a year before the event and selling a year after has been profitable.
- Diversification: Including altcoins with halving in the portfolio (LTC, ZEC).
- Monitoring macro factors: Taking into account regulatory changes, macroeconomic crises, and technological updates.
Conclusion
Halving is a key element of the economy of Bitcoin and other PoW cryptocurrencies, combining inflation control, scarcity creation, and technological progress stimulation. Despite a historical connection to price increases, its impact is weakened due to market growth and external factors. For investors, it is important to consider both opportunities and risks associated with volatility and changes in the mining industry.
