The fourth quadrennial bitcoin halving is in about 29 hours and there are less than 200 blocks left to mine before the event.
X
As of late Thursday, there are fewer than 175 blocks to mine before the next halving. According to data from Mempool.space, approximately 99.9% of the required blocks have already been mined. Mempool.space tracks block mining activity for the bitcoin network, and it is a useful tool for those interested in exactly when the halving will take place.
The network produces new blocks in an average of 10 minutes and 35 seconds, according to Bitcoin statistics site Bitaps. At the current mining speed, the halving will take place late Friday evening or early Saturday morning.
What are blocks?
To understand mining and blocks, it is helpful to first understand the bitcoin network and blockchain. The bitcoin network is a decentralized peer-to-peer network that operates the bitcoin blockchain, which is essentially a digital ledger that documents cryptocurrency transactions.
The network consists of computers around the world, also called nodes. Miners use these nodes to mine bitcoin, and they form the backbone of the network. Mining is the process that generates new cryptocurrency coins and verifies new transactions.
The Bitcoin network uses a proof-of-work consensus algorithm for mining. Consensus algorithms, called protocols, are the rules for governing crypto networks. Proof-of-work protocols reward miners for processing and validating transactions. The protocols solve complex mathematical problems that require an enormous amount of computing power.
The data produced by that work, as well as other bitcoin network data, is stored in bundles known as blocks. Each block is encrypted using a function called a hash function, which assigns it a specific hash value. These hash values look like strings of numbers and letters.
Miners compete to be the first to discover the ‘correct’ hash value and thus validate the block. Once the other nodes in the network confirm the solution, the block is added to the ledger. The winning miner receives fees for processing the transactions or bitcoin rewards in the case of newly minted coins.
Meanwhile, miners use the block itself to hash new transactions for the next block, which forms a chain known as the blockchain.
The Bitcoin Halving
Halving events reduce the number of crypto rewards given out to miners by 50%. The process was outlined by Satoshi Nakamoto, the reputed creator of the cryptocurrency, in the original Bitcoin White Paper published in 2008. Bitcoin ‘miners’ receive rewards for verifying their transactions and creating blocks. In doing so, they also ‘create’ bitcoins.
A halving means that the reward for miners is halved. Some call the events ‘halvings’, a mix of ‘halving’ and ‘happening’.
Halving the mining reward helps control the rate at which new bitcoins are created. The total bitcoin supply is limited to a maximum of 21 million bitcoins.
The upcoming halving will reduce mining rewards to 3,125 bitcoin per block. The last bitcoin halving took place in May 2020, when mining rewards dropped from 12.5 bitcoin per block to 6.25 bitcoin per block mined.
Halving events occur after every 210,000 bitcoins are mined. That takes roughly four years. Bitcoin’s price has historically risen in the months following the halving. That’s because demand remains largely the same, while reduced mining rewards cause the creation of new bitcoins to slow down.
Halving the price impact
Coin base (COIN) notes that while halving events improve the technical aspects of supply and demand, they do not necessarily cause crypto bull runs.
“In our view, the underlying significance of the halving lies in its ability to attract media attention around what makes bitcoin unique: a fixed, disinflationary supply schedule,” a team led by David Duong, head of institutional research, wrote in the Coinbase Institutional 2024 Crypto. Market Outlook.
Furthermore, the hash rate, or the computing power required to mine Bitcoin, continues to increase. That makes it more expensive and difficult to mine new bitcoin. Therefore, the reduction in mining rewards, combined with higher processing power requirements, could lead to a shakeout among bitcoin miners as profit margins tighten, Duong says.
Bitcoin mining is gearing up for a shakeout as the halving approaches
Matthew Sigel, head of digital assets research at VanEck Bitcoin Trust (HODL), agrees that the halving event will create winners and losers. “Unprofitable miners will disconnect and give up shares to those with cheap energy,” he wrote in VanEck’s crypto outlook for 2024. Sigel doubts this will put pressure on public markets thanks to improved balance sheets of publicly traded bitcoin miners like Marathon digital (MARA) and Riot platforms (REVOLT). They control about 25% of the global hash rate.
Bitcoin short interest
Meanwhile, short interest on bitcoins appears to be rising ahead of the halving, according to Rob Chang, CEO of the Las Vegas-based bitcoin miner. Gryphon digital mining (GRYP) and former CFO of Riot Platforms.
Chang noted that there has been an increase in hedge funds participating in carry trades, which leverage price differences between the spot and futures markets to generate profits. “Even with Bitcoin’s recent dip, futures are still seeing high premiums, making carry trades attractive,” Chang told IBD.
Another factor is the Federal Reserve’s more cautious approach, which has dampened expectations for rapid rate cuts. “This has made the risk-reward proposition of shorting bitcoin more attractive, as broader expectations of a stronger dollar could potentially weaken bitcoin’s price,” Chang said.
The bull case for Coinbase stock: Bitcoin strike and more
In the meantime, there is less certainty about this year’s halving.
Normally, after a halving, there is a rise in bullish momentum, Chang said. But there is speculation that the market has already priced this in.
The introduction of US spot bitcoin ETFs created a “whole new playing field in terms of market dynamics,” Chang said. ETFs allowed institutional capital to flow into bitcoin, potentially changing its price response compared to previous halving cycles.
The uncertainty led some to take bearish positions, while others likely held on to their gains, Chang said.
Price outlook
Still, Chang says bitcoin could soar higher after the halving.
“If the shorts turn out to be wrong, we could see a supply contraction,” he said. “Even with bitcoin’s swings, it remains close to record highs. And the futures market showing significant premiums all points to strong confidence in bitcoin’s continued integration and legacy.”
Rate cuts could push up risky assets like BTC even further, Chang added.
Why Cathie Wood Sees Bitcoin Price Soaring to $3.8 Million
He said Gryphon will monitor the mix of institutional interest and the general mood of the market. Spot bitcoin ETFs have been a “significant” inflection point that has already attracted “substantial” institutional investment, signaling the growing adoption of bitcoin and creating new opportunities for capital. Regulatory developments, broader economic factors, and further technological advancements within the Bitcoin network will all be factors this year.
And despite the uncertainty surrounding this year’s event, “the psychological impact of the halving should not be underestimated,” Chang said.
Gryphon Digital Mining believes BTC will surpass $100,000 by 2024, with Chang adding that the estimate is “quite low.”
He noted that other forecasts predict Bitcoin will rise above $150,000, calling them “completely possible.”
Bitcoin price action
Bitcoin was trading around $63,500 on Thursday afternoon, up from the 24-hour low of $60,800.
On March 14, Bitcoin reached an all-time high of $73,798, surpassing the previous peak of $68,990 from November 2021.
The world’s largest cryptocurrency recovered by about 157% in 2023. Bitcoin is up about 50% so far this year, with most of its gains extended in February and March.
You can follow Harrison Miller for more stock market news and updates on X/Twitter @IBD_Harrison
YOU MAY ALSO LIKE:
Stay up to date with cryptocurrency prices and news
Looking for the next big scholarship winners? Start with these 3 steps
Join IBD Live and learn the best chart reading and trading techniques from professionals
Learn how to time the market with IBD’s ETF market strategy
