The much-anticipated “halving” of Bitcoin’s software update has been completed, a potential blow to companies that make money by ensuring the digital currency runs smoothly and securely.

The four-year event halves the so-called mining reward, the number of bitcoins released from the network to compensate companies called miners for verifying transactions.According to data from the analytics website, the change will take effect from 8:10 pm New York time on Friday. memory pool space and Blockchain.com. Post-halving, Bitcoin price remains virtually unchanged near $64,000.

This change in rewards is by design and is predestined by the code that runs the Bitcoin blockchain. Bitcoin’s anonymous creator, Satoshi Nakamoto, attempted to use the halving mechanism to maintain an eventual hard cap of 21 million Bitcoins to prevent inflation in the original cryptocurrency. This halving is the fourth since 2012 and will see the daily reward paid to miners drop from 900 Bitcoin to 450 Bitcoin.

Bitcoin Advocates Expect Halving to Be Positive catalyst For the recent bull run, it further reduced the supply of new tokens at a time when demand for them rose from new exchange-traded funds that hold digital assets directly. Proponents of the original cryptocurrency, such as Michael Saylor, chairman of MicroStrategy Inc., claim it is a better store of value than traditional fiat currencies, which they argue are more vulnerable to inflation.

Still, while Bitcoin has risen to record levels after past halvings, market watchers, including analysts at JPMorgan Chase and Deutsche Bank, expect the event to be all but priced in by the market.

“As expected, the halving is fully priced in, so price movements are limited,” said guojizhuangHe is the CEO of Singapore-based AsiaNext, a digital asset exchange for institutional investors. “Now, the industry will have to wait and see if there is a rebound in the coming weeks amid continued institutional interest.”

It’s worth noting that the dilutive effect of Bitcoin mining diminishes with each halving. While the number of coins mined in the first post-halving cycle reached 50% of the Bitcoin in circulation when the halving took effect, the new supply for the next cycle will be only 3.3%, according to data compiled by Bloomberg .

Bullishness for Bitcoin in the short term may be tempered by macroeconomic impacts, such as the Federal Reserve signaling a pause in interest rate cuts and conflicts in the Middle East. Chen Dehuaco-founder of Parataxi Capital.

“We may make some cuts in the next quarter until the macro situation becomes clearer,” Chin said. “In the meantime, the main driver of prices is likely to remain ETF flows.”

The main impact of the halving is expected to be on Bitcoin mining companies, rather than the actual price of the cryptocurrency.

Blockchain updates are ready to go wipe out Miners earn billions of dollars annually, but if the price of cryptocurrencies continues to rise, the impact will be lessened.

Bitcoin mining is an energy-intensive process in which miners use specialized computers to verify transactions on the blockchain. Large miners such as Marathon Digital Holdings Inc. and Riot Platforms Inc. have spent billions of dollars purchasing energy, purchasing mining equipment and building data centers.

JPMorgan expects the industry to consolidate and public companies to gain market share.

“Publicly listed Bitcoin miners are well-positioned to take advantage of the new environment, primarily due to greater access to capital, particularly equity financing,” JPMorgan analysts wrote in a report this week. “This helps to expand their operations and invest in more efficient equipment.”

Past halvings have been completed without significant disruption to the functionality of the Bitcoin blockchain.

The next halving will occur in 2028, and the reward for miners who successfully process a block of transaction data will be reduced from 3.125 to 1.5625. The average time to complete a block is approximately 10 minutes. There are expected to be 64 Bitcoin halvings before reaching the 21 million cap sometime around 2140, at which point the halvings will stop and the blockchain will stop issuing new tokens.

When this happens, Bitcoin miners will have to rely on transaction fees as another source of revenue for them in addition to mining rewards. As rewards continue to dwindle, rising transaction fees may help some miners stay afloat, but these fees currently only account for a small portion of miners’ overall revenue.

© 2024 Bloomberg

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