Halving is a significant event in Bitcoin history, which occurs once every four years. Halving is when the amount of Bitcoin given to miners as a reward for their work is reduced by half.
Halving aims to keep the number of Bitcoins in circulation from exceeding 21 million coins.
The next halving is expected to occur in April 2024, when the reward per block will drop from 6.25 Bitcoins to 3.125 Bitcoins. The halving will have a major impact on the Bitcoin market and network, according to a report published by research firm BitOoda.
Main Factors Affecting Bitcoin Price
The report suggests that the main factor influencing the price of Bitcoin is the flow of funds into the ecosystem, which is currently around $25 million per day, to absorb the approximately 900 new Bitcoins coming into circulation through mining.
During a halving, the supply of new Bitcoins received by miners will decrease drastically, which can increase the demand and price of Bitcoin.
The report also notes that market sentiment can also play a role in determining the price of Bitcoin, namely how investors view Bitcoin's future prospects. Based on historical data, BitOoda said that six months after each halving, Bitcoin prices always increase, with the most significant increase occurring after the first halving in 2012, when the price jumped more than tenfold.
In 2016, Bitcoin prices increased by 53% six months after the halving, while in 2020, the halving started with relatively flat prices, excluding the sharp drop in March 2020 triggered by the COVID-19 pandemic. Bitcoin's price then rose more than 70% in the next 180 days.
Although the dollar value of mined Bitcoin initially falls after each halving, the post-halving flow of funds has always caused the price to recover throughout Bitcoin's history, according to data from CryptoQuant. However, the effect becomes smaller over time, as the supply reduction with each halving becomes less significant compared to other factors.
“Adoption, institutional demand, easier access to Bitcoin, and macro factors are becoming more important for Bitcoin price growth,” said Julio Moreno, CryptoQuant's head of research.
Moreno pointed out that when capital flows increase, meaning demand for trading Bitcoin also increases, the asset will strengthen, and vice versa.
Impact of Halving on Bitcoin Hash Rate
The Bitcoin ecosystem will likely continue to experience significant growth in the next few years, with both the price and hash rate expected to increase steadily ahead of the next halving in 2024, according to the report.
Hash rate is a measure that describes the computing power of the proof-of-work Bitcoin network, which is currently around 515 exahashes per second (EH/s).
However, between 15% to 20% of the hash rate coming from eight types of dedicated mining machine (ASIC) models could fail when the halving occurs, Galaxy Digital analysts said in a report published on Wednesday.
The ASIC models analyzed include the M20S, M32, S17, A1066, A1246, and S9, as well as the more efficient S19s or S19j Pros. The estimated breakeven revenue in dollars per megawatt hour takes into account a block subsidy that would be 3,125, transaction fees that account for 15% of rewards, and a Bitcoin price of $45,000. Bitcoin prices were around $52,000 on Thursday morning.
Galaxy then takes into account projected future electricity prices and the implied electricity costs of public miners. Estimates of between 15% to 20% of the hash rate being off stem from “how sensitive the breakeven for various ASIC models is to Bitcoin price and transaction costs as a percentage of reward,” Galaxy analysts said in the report.
“Most likely, miners operating these old and inefficient machines are running custom firmware to increase ASIC efficiency and thereby increase their breakeven threshold,” the analyst wrote.
“Additionally, it is likely that instead of leaving the network completely, some ASIC models will simply change hands to miners with cheaper electricity costs.”
Chase White, senior analyst at Compass Point Research & Trading, told Blockworks he expected a slightly lower drop. Compass Point estimates an average hash rate of 565 EH/s in April, with a projected average Bitcoin price of $55,000 that month.
With the average Bitcoin price expected to rise to $57,500 in May following the halving, the firm then expects the hash rate to fall to an average of 500 EH/s in May – a decline of around 12%.
The market surge in the second half of 2023 and the upcoming halving are likely to drive increased spending by mining companies. The companies committed $1.2 billion to mining machines in the first 11 months of last year, according to BlocksBridge Consulting data.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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