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Welcome to the fifth era of Bitcoin.
A new era of digital scarcity has begun as network programs decline for newly minted Bitcoins. As clockwork Friday, the rewards miners earn for validating Bitcoin transactions have been cut in half for the fourth time since the blockchain’s launch.
Bitcoin’s so-called halving occurred shortly after 8 PM ET on Friday. As a result, miners will earn 3.125 BTC per block created until sometime in 2028. This is part of miners’ dues for solving a cryptographic puzzle that will help keep Bitcoin’s network secure until it continues to be halved into the 22nd century.
Triggered by just seven lines of code from Bitcoin’s pseudonymous creator, Satoshi Nakamoto, Bitcoin halving may be routine, but it is key to the asset’s quality. Galaxy Digital Analyst Gabe Parker explained Twitter (a.k.a.
As for the price of Bitcoin, it’s anyone’s guess. However, historically, Bitcoin price has gained positive momentum after each halving. But generally not right away.
But the changing macroeconomic environment, prior knowledge of how halvings play out, and Wall Street’s newfound control over investment vehicles make this moment in Bitcoin history distinct.
Matthew Sigel, head of digital asset research at VanEck, wrote that Bitcoin’s “most explosive gains” typically occur 180 days after the halving. blog post. On average, Bitcoin prices rose 427% from 30 days before the halving to 180 days after the halving. Bitcoin rose 116% in 2020, from $6,800 to $14,850, according to a blog post.
Do you remember 2020? “Bitcoin’s third halving could mark a shift in monetary policy as central banks struggle with a pandemic-era slowdown that threatens to throw the global economy into chaos,” said Dessislava Aubert, research director at cryptocurrency analytics firm Kaiko. “It is important to note that this occurred when there was extreme laxity,” he said. decryption.
Before the last halving, “the Fed was easing,” she said. “For me, the biggest difference compared to the most recent halving (2020) is the macro environment.”
As U.S. consumer prices soared in 2022, the Federal Reserve raised interest rates at an alarming rate to suppress inflation. Monetary conditions are relatively tight right now, and markets are driven by expectations of when the Federal Reserve will be able to cut interest rates, Aubert said.
“There is a lot of concern that the Fed could cut rates less than three times this year,” she said. “It won’t be good for Bitcoin, let alone risk assets.”
Despite higher interest rates, Bitcoin hit record highs in March as Wall Street embraced spot Bitcoin ETFs. The product, which allows investors to gain exposure to Bitcoin from traditional brokerage accounts, has laid the foundation for Bitcoin demand, attracting billions of dollars in inflows since January, Coinbase analysts David Duong and David Han said. wrote In March.
“Bitcoin’s response to the upcoming halving may not necessarily reflect its performance in previous cycles, as major institutional participants can now gain exposure through these vehicles,” they wrote. And stable demand for the product could reduce volatility, he added.
Kaiko’s Aubert said the volatility that marked previous halvings may also decrease as Bitcoin miners become more experienced in navigating the event. Typically, some struggling miners are forced to sell their Bitcoin as the price of producing Bitcoin effectively doubles.
“I think the miners are better prepared this time,” she said. “They have been building liquidity… and there has been significant consolidation in the sector over the past year.”
The outlook for miners’ pain to ease was shared by Charles Chong, director of strategy at cryptocurrency mining and staking company Foundry. decryption The miners had plenty of time to prepare. In a way, it shows how far overall sophistication has come.
“The prospect of revenues being halved overnight every four years is unprecedented in other sectors, but the predictable nature of these events allows for strategic preparation,” he said. “Overall, the halving requires operational improvements, which can translate into long-term optimism by creating a more resilient and efficient mining environment.”
Editor: Andrew Hayward
