A software update related to Bitcoin’s “halving” has reduced the supply of new tokens, posing a threat to miners.
The fourth Bitcoin halving has reduced the daily reward for miners from 900 Bitcoin to 450.
A highly anticipated update to the Bitcoin software, known as the “halving,” has been completed, potentially impacting companies that profit from ensuring the smooth and secure functioning of the digital currency.
This event, occurring once every four years, has reduced the mining reward, which compensates miners for validating transactions, by half. The change took effect at 8:10 p.m. New York time on Friday, according to data from analytics websites mempool.space and Blockchain.com. Despite the halving, the price of Bitcoin remained relatively stable near the $64,000 level.
The reduction in rewards was predetermined by the code governing Bitcoin’s blockchain and was designed to maintain a hard cap of 21 million Bitcoin, preventing inflation. As a result of this fourth halving since 2012, the daily reward for miners will drop from 900 Bitcoin to 450.
Bitcoin proponents anticipate that the halving will stimulate the latest bull market by further decreasing the supply of new tokens, coinciding with increased demand from new exchange-traded funds holding the digital asset directly. Advocates, including MicroStrategy Inc. Chairman Michael Saylor, argue that Bitcoin is a superior store of value compared to traditional fiat currencies, which are more susceptible to inflation.
However, despite past rallies following halvings, market observers, including analysts from JPMorgan Chase & Co. and Deutsche Bank AG, had predicted that this event was largely priced into the market.
“As anticipated, the halving was fully priced in, resulting in limited price movement,” said Kok Kee Chong, CEO of Singapore-based AsiaNext, a digital asset exchange for institutional investors. “Now the industry will have to wait to see if a rally occurs in the coming weeks amidst sustained institutional interest.”
It’s worth noting that the dilutive impact of Bitcoin mining decreases with each halving. While the cycle following the first halving produced new tokens equivalent to 50% of the Bitcoin outstanding at the time, the upcoming cycle will only generate 3.3% of new supply, according to data compiled by Bloomberg.
Edward Chin, co-founder of Parataxis Capital, suggests that bullish sentiment towards Bitcoin in the short term could be tempered by macroeconomic factors, such as indications from the Federal Reserve that interest-rate cuts are paused and ongoing conflicts in the Middle East.
Chin predicts, “We may experience some volatility in the coming quarter until there is more clarity on the macroeconomic landscape. During this period, the main factor influencing Bitcoin’s price is likely to be ETF fund flows.”
The primary effect of the halving is anticipated to affect Bitcoin mining firms more significantly than the cryptocurrency’s actual price.
The blockchain adjustment is set to erase billions of dollars in yearly earnings for miners, although this impact could be lessened if the price of the cryptocurrency continues to climb.
Bitcoin mining, an energy-intensive process, involves using specialized computers to validate transactions on the blockchain. Companies like Marathon Digital Holdings Inc. and Riot Platforms Inc. have invested billions in acquiring energy, buying mining equipment, and constructing data centers. JPMorgan anticipates consolidation in the sector, with publicly traded firms gaining market share due to their access to funding, particularly equity financing. Past halvings haven’t disrupted the Bitcoin blockchain’s operation. The next halving, scheduled for 2028, will reduce the reward to 1.5625 from 3.125 for processing a block of transaction data. Transaction fees will become crucial for miners as rewards diminish, but they currently contribute only a small portion of total revenue.
