The 4th Bitcoin Halving Explained
Sometime in April 2024, the reward that cryptocurrency miners receive for mining bitcoin (BTC) will go from ₿6.25 to ₿3.125, with significant consequences for the world’s most valuable digital currency.
To help understand this quadrennial event, Visual Capitalist's Chris Dickert teamed up with HIVE Digital to take a deep dive on historical bitcoin data from Coinmetrics to see what the three previous halvings might tell us about the fourth.
Bitcoin Explained
But to understand halvings, we first need to take a step back to talk a bit about how the Bitcoin network works.
Unlike fiat currencies like the U.S. dollar or the Chinese yuan that are backed by central banks, cryptocurrencies are supported by an underlying blockchain, which contains a record of every single bitcoin transaction in a public decentralized, distributed ledger.
When you spend a bitcoin, a digital record of that transaction needs to be validated and added to the blockchain. And this is where miners come in. They legitimize and audit bitcoin transactions, and as a reward, receive bitcoin in payment.
Halvings Explained
Now, quantitative easing notwithstanding, you normally can’t keep printing money forever without running into hyperinflation (think 1920s Germany or 1990s Argentina).
To get around this problem, the Bitcoin network has a pre-programmed upper limit of 21 million, with the reward that miners receive decreasing by half (hence, halving) roughly every four years.
When the Bitcoin network first launched, the reward was initially set to ₿50, an amount that was high enough to quickly increase the money supply and incentivize miners to participate in the validation process. On November 28, 2012, that reward decreased by half to ₿25, then to ₿12.5 on July 9, 2016, and on May 11, 2020, to ₿6.25.
The last halving will happen sometime in 2136, with the reward decreasing to ₿0.00000001 or one satoshi, the smallest denomination of bitcoin possible. The last bitcoin will enter circulation four years later, in 2140.
Halvings and Miner Revenue
With the fourth halving just around the corner, some have wondered whether mining will still be sustainable. Modern mining operations today are costly endeavors, often with razor-thin margins, and losing half of one’s revenue overnight would be a nightmare for any business.
And if you look at historical miner revenue in bitcoin, you can see quite clearly, the steep drop in revenue after each halving. But what’s interesting, is that if you compare that against the miner revenue in USD, there is a drop there as well, but it recovers soon thereafter as the cryptocurrency appreciates. In other words, a miner may receive less bitcoin, but that bitcoin is worth more.
Halvings Compared
So we know that the network will continue to function after the fourth halving, but what else can we learn from previous halvings?
If we look at the percent change in market capitalization post-halvings, we can see a bit of a pattern. After both the second and third halvings, market capitalization peaked at around the year-and-half mark. The second-halving peak occurred on day 526 at around $328 billion, an increase of 3,000%, while the third-halving peak came three weeks later on day 547 at over $1.2 trillion, or an increase of just under 700%.
The post-first-halving peak happened a bit earlier, at the 372-day mark, but because the peak was so high (over 10,000%!) it is considered an outlier, and omitted to better illustrate the trend.
The 4th Bitcoin Halving Projected?
Because we know that halvings occur every 210,000 blocks and that each block takes around 10 minutes to mine, we have a good idea of when the fourth halving should happen: April 21, 2024. If the next halving follows the same pattern as the previous two, then there could be a market-capitalization peak some time during the third week of October 2025.
And with the price of bitcoin setting new records at time of writing, a lot of people will be watching very closely, indeed.