Late on Friday 19 April Bitcoin (BTC) underwent its 4th ‘halving’. Bitcoin halves due to a mechanism built into its protocol to control the supply of new BTC entering circulation.
Money Map Media’s II and IA spoke to Block Asset Management c0-founder Kevin Ballard to ask, What is the halving? Why is it so important? What happens next?
“Without being too technical, by design, there will only ever be 21 million Bitcoin. To achieve this, the reward given to miners for verifying transactions and adding new blocks to the blockchain is cut in half every 210,000 blocks (approximately 4 years) in an event known as ‘Bitcoin Halving’. On April 19th BTC block reward (release of new BTC) reduced from 6.25 BTC to 3.125 BTC.
“The primary reason for the halving is to control and gradually reduce the rate at which new BTC are released. Thus making BTC deflationary (unlike fiat currencies). This scarcity helps maintain BTC’s value over time. Quite the opposite to fiat currencies (susceptible to inflationary measure such as quantitative easing/money printing).
“BTC halving affects the value of BTC by way of simple economics, by reducing the supply, the price theoretically increases (providing demand remains constant or increases).”
Ballard continued: “The previous 3 halving’s (2012, 2016, 2020) led to price increases post halving, with BTC’s value surging significantly over the following 12 to 18months. What is so exciting this time is that BTC’s 2024 halving has come just 3 months after the SEC approved multiple spot BTC ETFs (Blackrock, Fidelity, Franklin Templeton, Ark Invest, Wisdom Tree).
“These BTC ETFs have made BTC more accessible than ever before, with a wave of institutional capital flowing into the market. This demand, plus the imminent (at time of approval) halving, pushed the BTC value to an all-time high. Post halving we expect to see BTC continue to set new highs.
“Interestingly, it is not BTC that benefits most post halving, it is in fact the wider market (altcoins). Whilst for the foresaid reasons, BTC has reached record high this year, most ‘altcoins’ (a term to collectively separate all other digital assets from BTC) remain some way from their all-time high. Historically, post halving, the wider market has greatly outperformed BTC (3x in 2020 and over 20x in 2021). This is known as ‘altcoin season’. A period where diversification into carefully selected ‘altcoins’ can lead to substantial returns.
“A word of caution however, selecting winners is not easy and custody can be challenging. The use of expert crypto fund managers is recommended, the use of leverage is not. Due diligence and diversification is of paramount importance. Try to use a manager with at least a three year track record (ideally five) and one that has industry recognition/awards.”
