The bitcoin halving is one of the most important concepts to understand in the crypto market. This is due to the fact that it has a significant effect on the prices of all crypto assets.
What is the bitcoin halving
Bitcoin has an upper limit of 21 million coins that can ever be mined and exist. Mining is important because bitcoin works on a Proof-of-work network. This network requires miners to process transactions and validate blocks to eventually receive bitcoins as a reward for their mining actions.
At the moment, 90% percent of all the bitcoins have already been mined. This means that only 10% of all bitcoins are left to be mined in the future. However, the halving has caused that the mining rewards are cut in halve every 4 years since 2012. This has the effect that there is a supply shortage of bitcoins, which has influenced the price of bitcoin in the past.
At the time this blog post is being written, have already 3 halvings taken place. The first one was as already mentioned in 2012, the second one was in 2016 and the last one was in 2020. After the first halving in 2012, the bitcoin price went from around 10 dollars to over 1’000 dollars. Then after the second halving, the bitcoin price went from under 1000 dollars to over 20’000 dollars within approximately 1.5 years.
It is of course a speculative assumption that the price of bitcoin will always increase because of the halving. There are also a lot of other facts that are important to take into consideration. The price of bitcoin could have also increased after a halving because of the always improving cryptocurrency technology and the mental acceptance of bitcoin from people.
Nevertheless, it is a fact that bitcoin increased significantly in its value after every halving. This increase can only be speculatively derived from the supply shock that the halving has caused.
Why is it important?
But why is only the bitcoin halving so important for the cryptocurrency market?
Bitcoin is currently the cryptocurrency with the largest market cap in the whole crypto market. This market cap is calculated by the number of coins that are in circulation. This number of coins is then multiplied by the current price of bitcoin to receive the market cap of bitcoin.
Bitcoin is therefore the biggest player in the whole crypto market and all the other coins (Altcoins) increase in value when bitcoin increases in value and the opposite around. This is exactly the reason why the bitcoin halving is so important to be understood. It has an effect on the entire cryptocurrency market and can determine if the prices of altcoin fall or increase.