The fourth quadrennial bitcoin halving is about 12 hours away with fewer than 75 blocks left to mine before the event.
As of Friday morning, there are fewer than 75 blocks to mine before the next halving. About 99.97% of the required blocks are already mined, according to data from Mempool.space. Mempool.space tracks block mining activity for the bitcoin network, and it's a handy tool for those interested in just when the halving occurs.
The network produces new blocks at an average 10 minutes and 35 seconds, according to bitcoin statistics site Bitaps. At the current mining rate, the halving will occur late Friday night.
What Are Blocks?
To understand mining and blocks, it's helpful to first understand the bitcoin network and blockchain. The bitcoin network is a peer-to-peer decentralized network that governs the bitcoin blockchain, which is essentially a digital ledger that documents cryptocurrency transactions.
The network is made up of computers across the globe, known as nodes. Miners use these nodes to mine bitcoin, and they are the backbone of the network. Mining is the process that generates new cryptocurrency coins and verifies new transactions.
The bitcoin network uses a proof-of-work consensus algorithm for mining. Consensus algorithms, called protocols, are the rules for governing crypto networks. Proof-of-work protocols award miners for processing and validating transactions. The protocols solve complex math problems that require a massive amount of computing power.
The data produced by that work, as well as other bitcoin network data, is stored in bundles known as blocks. Each block is encrypted using a function, called a hashing function, that assigns it a specific hash value. These hash values look like strings of numbers and letters.
Miners compete to be the first to discover the "correct" hash value, thereby validating the block. Once the other nodes in the network confirm the solution, the block gets added to the ledger. The winning miner receives fees for processing the transactions or bitcoin awards in the case of newly minted coins.
Meanwhile, miners use the block itself to hash new transactions for the next block, which forms a chain known as the blockchain.
The Bitcoin Halving
Halving events reduce by 50% the amount of crypto rewards doled out to miners. The process was set out by Satoshi Nakamoto, the cryptocurrency's reputed creator, in the original bitcoin white paper published in 2008. Bitcoin "miners" receive rewards for verifying its transactions and creating blocks. In the process, they also "create" bitcoins.
A halving means the reward to miners is cut in half. Some refer to the events as "halvenings," a blend of "halving" and "happening."
Halving the mining reward helps control the rate at which new bitcoins are created. The total bitcoin supply is capped at a maximum of 21 million bitcoins.
The upcoming halving will cut mining rewards to 3.125 bitcoin per block. The last bitcoin halving event occurred in May 2020, when mining rewards fell to 6.25 bitcoin per block mined, down from 12.5 bitcoin per block.
Halving events occur after every 210,000 bitcoins are mined. That takes roughly four years. The price of bitcoin has historically risen in the months after halving events. That's because demand remains largely the same, while decreased mining rewards mean the creation of new bitcoins slows.
Halving Price Impact
Coinbase notes that even though halving events improve supply-demand technicals, they may not necessarily launch crypto bull runs.
"In our view, the halving's underlying significance lies in its ability to raise media attention around what makes bitcoin unique: a fixed, disinflationary supply schedule," a team lead by David Duong, head of institutional research, wrote in the Coinbase Institutional 2024 Crypto Market Outlook.
Moreover, the hash rate, or computational power required to mine bitcoin, continues to increase. That makes it more costly and difficult to mine new bitcoin. Therefore, the reduction in mining rewards, combined with higher processing power requirements, could lead to a shakeout among bitcoin miners as profit margins narrow, Duong says.
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Matthew Sigel, head of digital assets research at VanEck Bitcoin Trust, agrees that the halving event will create winners and losers. "Unprofitable miners will disconnect, ceding shares to those with low-cost power," he wrote in VanEck's 2024 crypto outlook. Sigel doubts it will stress the public markets thanks to improved balance sheets of listed bitcoin miners such as Marathon Digital and Riot Platforms. They control about 25% of the global hash rate.
Bitcoin Short Interest
Meanwhile, bitcoin short interest appears to be rising ahead of the halving, according to Rob Chang, CEO of Las Vegas-based bitcoin miner Gryphon Digital Mining and former CFO of Riot Platforms.
Chang noted there has been an increase in hedge funds participating in carry trades, which leverage the price differences between the spot and futures market to generate a profit. "Even with bitcoin's recent dip, futures are still seeing high premiums, making carry trades appealing," Chang told IBD.
Another factor is the Federal Reserve's more cautious approach, which has tempered expectations for quick cuts to interest rates. "This has made the risk-reward proposition of shorting bitcoin more appealing, as the broader expectation of a stronger dollar could potentially weaken bitcoin's price," Chang said.
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Meanwhile, there's less certainty regarding this year's halving.
Typically there is a surge in bullish momentum after a halving, Chang said. But there is speculation that the market has already priced this in.
The introduction of U.S. spot bitcoin ETFs created a "whole new ballgame in terms of market dynamics," Chang said. ETFs enabled institutional capital to flow into bitcoin, potentially altering its price reaction compared to previous halving cycles.
The uncertainty prompted some to take bearish positions and others likely locked in profits, Chang said.
Price Outlook
Still, Chang says bitcoin could climb higher after the halving.
"If the shorts turn out to be wrong, we could see a supply squeeze," he said. "Even with bitcoin's fluctuations, it remains close to all-time highs. And the futures market showing significant premiums, all points to a strong confidence in bitcoin's ongoing integration and legacy."
Rate cuts could drive risk assets like BTC even higher, Chang added.
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He said Gryphon will be watching the blend of institutional interest and the general mood of the market. Spot bitcoin ETFs have been a "significant" turning point that have already drawn "substantial" institutional investment, which points to bitcoin's growing acceptance and creates new avenues for capital. Regulatory developments, broader economic factors, and further advancements to technology within the bitcoin network will all be factors this year.
And despite the uncertainty around this year's event, "the psychological impact of the halving shouldn't be underestimated," Chang said.
Gryphon Digital Mining believes BTC will surpass $100,000 in 2024, with Chang adding that the estimate is "quite low."
He noted other forecasts project bitcoin to rise above $150,000, calling them "entirely possible."
Bitcoin Price Action
Bitcoin early Friday traded around $65,000, marking a 4.2% surge over the last 24 hours.
On March 14 bitcoin hit an all-time high $73,798, surpassing its prior peak of $68,990 set in November 2021.
The world's largest cryptocurrency rebounded about 157% in 2023. Bitcoin has jumped about 52% so far this year, with most of the gains compounded in February and March.
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