Understanding Bitcoin Halving: What It Is and How It Affects Prices
Bitcoin is the world’s first and largest digital currency. Many people know this. But there is a lesser-known aspect of Bitcoin called “halving events.”
Bitcoin Halving Explained
Bitcoin halving affects how new Bitcoins are created. It does not change the total number of Bitcoins that exist.
When people “mine” Bitcoin, they use computers to solve complex puzzles. This process adds a new block to Bitcoin’s blockchain. As a reward, miners get new Bitcoins.
A halving event cuts the reward miners get by half. This event happens every 210,000 blocks, roughly every four years.
Here’s a brief history of Bitcoin halvings:
- First halving: November 28, 2012 – reward dropped from 50 to 25 Bitcoins.
- Second halving: July 9, 2016 – reward dropped from 25 to 12.5 Bitcoins.
- Third halving: May 11, 2020 – reward dropped from 12.5 to 6.25 Bitcoins.
- Fourth halving: April 19, 2024 – reward dropped from 6.25 to 3.125 Bitcoins.
Bitcoin is finite; only 21 million Bitcoins will ever exist. Halving events will keep happening until all Bitcoins are mined, which is expected around 2140.
What Impact Does Halving Have on Price?
Halving events often lead to higher Bitcoin prices. When rewards are cut, fewer new Bitcoins enter the market. If demand remains steady or increases, prices usually go up.
For example, in April 2024, Bitcoin hit an all-time high of over $69,000. This rise was partly due to the latest halving and new Bitcoin investment funds in the U.S.
After the May 2020 halving, Bitcoin’s price increased fivefold within a year. The limited supply makes Bitcoin a “scarce asset,” which can be valuable to investors.
Should I Take Any Action?
Investing in Bitcoin can be risky. Prices can change rapidly without warning. If you own Bitcoin, you might consider selling some before a halving if you need cash. However, predicting the market is difficult.
Selling Bitcoin also has tax implications. In the UK, profits from selling Bitcoin are subject to capital gains tax (CGT) if they exceed the annual allowance of £3,000.
The Risks of Investing in Crypto
Investing in cryptocurrencies is risky. They are not regulated by the Financial Conduct Authority (FCA). This means no protection if things go wrong.
Fraud is also a significant risk. In the UK, losses from crypto fraud exceeded £300 million in the year leading up to March 2023. The FCA is cracking down on misleading crypto ads and influencers promoting scams.
Buying Bitcoin
If you’re comfortable with the risks, you can buy Bitcoin from online exchanges like Coinbase, Robinhood, Gemini, and eToro. These platforms charge fees for trading.
For example, eToro charges 1% for buying and selling Bitcoin. Robinhood does not charge any fees. Some platforms offer incentives for new accounts, but check the terms and fees before choosing one.
You need to fund your account using a credit/debit card or bank transfer. Once purchased, your Bitcoin can be stored in a digital wallet on the platform or transferred to your own storage.
Always remember, investing in Bitcoin involves high risk. Make sure to do your research and only invest what you can afford to lose.
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