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Bitcoin is one of those assets whose interest is constantly growing exponentially. This is due to many factors, including its special economic nature. However, the most important aspect for many users is the extensive capital growth opportunities that the coin provides. You can evaluate them to the maximum every 4 years.
After all, at this moment the halving of Bitcoin begins. Experienced investors and traders prepare for this event in advance, because they know very well that profits can increase tens and hundreds of times. In this article, you will learn why this happens, and what halving is.
What is Bitcoin Halving?
The existence of the cryptocurrency asset system is based on cyclicality. One complete Bitcoin cycle lasts 4 years. That’s how much miners need to create the 210,000 new blocks from which it is mined. Why does the Bitcoin halving begin after reaching this mark? The answer is simple – it is embedded in the regulatory policy created by the creator of the first cryptocurrency.
Satoshi Nakamoto designed it to protect the digital coin and prevent it from depreciating as a financial asset. This significantly distinguishes Bitcoin from ordinary fiat currency. While it gradually depreciates under the influence of inflation, the first cryptocurrency is only gaining strength in the market. The fact is that during the Bitcoin halving, the mining reward is halved.
Thus, the activity of people engaged in such activities decreases, and the price of the asset automatically increases. The result is to contain the inflation of the BTC cryptocurrency and establish control over the emission process. The founder of Ethereum explained this process even more simply. He compared Bitcoin to gold. Just as the supply of this precious metal is depleted over time, the amount of blocks mined from BTC is decreasing. As a result, there is a shortage.
A key aspect in such a situation is the limited supply of Bitcoin. It is it that generates an increase in value, and accordingly improves the protection of the asset. Interestingly, Satoshi Nakamoto set the maximum number of Bitcoins in the strategy, which is equal to 21,000,000. According to forecasts, this number will be created in 2140, after which mining should stop.
How does BTC halving work?
To understand the essence of the process, you must first consider the Bitcoin mining process. It consists in the fact that experienced specialists in the field of cryptocurrency solve complex mathematical puzzles using powerful computer equipment. The first to do so can get the chance to attach a block of transactions to an existing blockchain chain.
If the work passes verification and is confirmed, the miner is rewarded in Bitcoins and new coins appear on the network. For such an expert, the size of the benefit per block that accrues to him is important, and it directly depends on the period of the cycle. With the onset of the Bitcoin halving, the amount of reward per block is reduced by 50%. In history, such an event has already happened 3 times:
- the first in 2012;
- the second in 2016;
- the third in 2020.
Initially, the decrease was from 50 to 25 BTC per block. Another 4 years later, the figure was 12.5 Bitcoins, and in 2020 it was equal to 6.25 BTC per block. This affects all market participants. Miners face new challenges that significantly complicate their process. For them, Bitcoin halving is a kind of strength test, as they have to compete in the network with strong “players”.
Many specialists simply stop their activities at this moment. Investors and traders have a completely different situation. The consequences of Bitcoin halving are positive for them. After all, the price of digital currency is increasing significantly, which opens up new opportunities for financial development for such participants.
What to expect in 2024?
There is a lot of information on the Internet about this event. However, it is worth trusting only verified sources and experienced analysts. In any case, it is also worth considering that each halving has its own characteristics and tendencies to reduce production. That is why each such event has a different potential. If you look at the previous 3 cycles, you can see that the momentum towards price growth is gradually decreasing.
This is due to the decrease in the cost of the block reward for miners. According to forecasts, in 2024 it will decrease to 3.12 Bitcoins. This cost will no longer be able to stimulate experts as before. However, for investors, this period is a good opportunity to get profits in large quantities. Some analysts predict that the price of the digital currency will increase by about 180%.
Most of them also have course-specific expectations. According to many experts, Bitcoin will reach the $125,000 mark. However, these are only expert opinions. In reality, the situation may change and it will not be possible to accurately predict all indicators. This is due to the fact that the indicators depend on many factors. In particular, the general economic situation, sentiments on the cryptocurrency and stock markets, as well as the behavior of influential participants.
How to prepare for halving?
Limiting the profits of those who mine the digital currency leads to a decrease in new supplies. This means that the value of Bitcoin will grow significantly and bring income to those who invested in the digital currency in time. An important aspect is choosing the right moment to enter, so you need to prepare for the event in advance. In this way, it is possible not only to ensure the preservation of cryptocurrency capital, but also to multiply it tenfold.
You should start by researching proven news channels, project pages, influential people and analysts in social networks, as well as studying statistical data. It is better to study the sources in a complex. After all, various events in the world and changes in the economy can have a serious impact on the cryptocurrency market and cause sharp fluctuations.
