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Bitcoin just completed its fourth ever halving. Here’s what investors should pay attention to now

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The Bitcoin network halved miner rewards on Friday evening for the fourth time in its history.

The celebrated event, which takes place approximately once every four years as prescribed in the Bitcoin Code, is intended to slow the issuance of Bitcoins, creating a scarcity effect and allowing the cryptocurrency to maintain its digital gold-like quality.

There may be some speculative trading at the event itself. JPMorgan said it expects some downside from bitcoin after the halving and Deutsche Bank said it “does not expect prices to increase significantly.” However, the impact could be greater months from now, even if Bitcoin continues its trend of diminishing returns from the halving day to the cycle top. Two important things to pay attention to are the block reward and the hash rate.

“While Bitcoin’s upcoming halving will cause a supply shock like the previous one, we believe its impact on the cryptocurrency’s price could be magnified by the concurrent demand shock caused by the rise of spot Bitcoin ETFs,” said Mark Palmer from Benchmark.

The bigger immediate impact will be on the miners themselves, he added. They are the ones who control the machines that do the work of recording new blocks of bitcoin transactions and adding them to the global ledger known as the blockchain.

“Miners with access to cheap, reliable energy sources are well positioned to navigate market dynamics post-halving,” Maxim’s Matthew Galinko said in a note on Friday. “Some miners, many of whom are not public, could exit the market due to a combination of poor access to energy, efficient machinery and capital. Miners with capital and relatively expensive energy are likely to find opportunities in the wake of potential consolidation and disruption caused by the halving.”

The block reward

Miners have two incentives to mine: transaction fees paid voluntarily by senders (for faster settlement) and mining rewards – 3,125 newly created bitcoins, or about $200,000 as of Friday evening, when the mining reward dropped from 6.25 bitcoins. The incentive initially amounted to 50 bitcoins.

The reduction in block rewards reduces the supply of bitcoin by slowing the pace at which new coins are created, preserving the idea of ​​bitcoin as digital gold – whose limited supply helps determine its value. Ultimately, the number of bitcoins in circulation will reach 21 million, according to the Bitcoin Code. There are currently approximately 19.6 million in circulation.

“Miners use powerful, specialized computer hardware to validate transactions on the Bitcoin network and permanently record them on the blockchain,” said Deutsche Bank analyst Marion Laboure. “This process, known as mining, rewards miners with newly minted bitcoins. But with each halving, the reward for mining is reduced to maintain scarcity and control cryptocurrency inflation over time.”

Historically, Bitcoin’s hash rate – or the total computing power used by miners to process transactions on the Bitcoin network – has fallen after halvings, pricing some miners out of the market. In general, the economy will recover in the medium term, Labore emphasizes.

The network’s hash rate has been at record highs for months as miners tried to grab market share ahead of the halving. Bitcoin’s hash rate growth dilutes the contribution of individual miners to the network’s hash rate.

“Over the past three halvings, the network has recovered to pre-halving hash levels within an average of 57 days,” she said. “It is also likely that bitcoin’s current high prices could limit this short-term dip in hash rate as bitcoin miners post record high profits ahead of the halving.”

Palmer said the impact of the halving on the economy of bitcoin miners “could be more than offset over time” if bitcoin price increases continue to push the cryptocurrency to new highs in the coming months.

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