BT Daily News: The Countdown Begins: One Year to Go Before the Next Bitcoin Halving

1. The Countdown Begins: One Year to Go Before the Next Bitcoin Halving

With just one year left before the much-anticipated Bitcoin halving event, experts and investors in the crypto industry are closely monitoring its potential impact on the market.

In the following feature, BeInCrypto delves deeper into the intricacies of the halving phenomenon, how it affects miners and the broader implications for the entire cryptocurrency ecosystem.

The Bitcoin Halving Unpacked
The halving is a fundamental mechanism in Bitcoin’s protocol. It is designed to reduce the mining reward by 50% every 210,000 blocks, or approximately every four years. This reduction serves a dual purpose. One is controlling Bitcoin’s inflation rate and emulating the scarcity of precious metals like gold. And the second is ensuring a predictable and decreasing supply of new BTC entering the market.

The primary objective of the halving event is to create a deflationary environment for Bitcoin. It gradually reduces the rate at which new coins are minted. This scarcity is intended to preserve BTC’s value over time, making it an attractive store of value. As a result, the halving mechanism is a crucial component of Bitcoin’s long-term economic sustainability.

Historically, halving events have significantly impacted Bitcoin’s price due to the reduced supply of new BTC. For instance, in the 2012, 2016, and 2020 halving events, the price of Bitcoin experienced substantial increases in the months following each event, as market participants anticipated a supply shock and increased demand for the now scarcer asset.

Currently, the mining reward stands at 6.25 BTC per block. After the next halving event, which is expected to take place in 2024, the mining reward will decrease to 3.125 BTC per block. This reduction in mining rewards will further limit the number of new BTC entering the market. Consequently, this potentially drives up the price as demand continues to grow amidst a decreasing supply.

However, it’s important to note that past performance does not guarantee future results. Various factors, such as market sentiment, regulatory developments, and macroeconomic trends, can influence Bitcoin’s price trajectory following the halving.

As such, market participants should approach the upcoming halving event with a balanced perspective. It is important to consider both its historical significance and the unique factors shaping the current market landscape.

Historical BTC Price Performance
Experts predict that the halving could lead to substantial changes in BTC’s price, as has been the case in previous halvings. However, factors such as global economic conditions, regulatory developments, and institutional investors’ strategies can influence the outcome.

In the 2012 halving, Bitcoin’s price increased from around $11 in November 2012 to a peak of approximately $1,100 in November 2013, marking a remarkable increase within a year.

During this period, Bitcoin was still a relatively new concept. And the market was primarily driven by retail investors and early adopters who foresaw the potential of decentralized digital currency.

The 2016 halving saw Bitcoin’s price rise from about $650 in July 2016 to nearly $20,000 in December 2017. Market sentiment during this period was predominantly bullish. It was fueled by increased mainstream media attention, a surge in initial coin offerings (ICOs), and the entrance of institutional investors.

Still, regulatory developments, such as crackdowns on ICOs and attempts to impose stricter rules on crypto exchanges, added a layer of uncertainty and contributed to market volatility.

The 2020 halving event saw Bitcoin’s price increase from around $9,000 in May 2020 to an all-time high of roughly $64,000 in April 2021. The 2020 halving was characterized by heightened institutional interest, with major corporations and investment funds entering the crypto market.

The COVID-19 pandemic also played a significant role in shaping market sentiment. As the global economic downturn and unprecedented fiscal stimulus measures raised concerns about inflation and currency debasement, demand for Bitcoin grew as a digital store of value.

Institutional investors, in particular, hold considerable sway over the market. Their reaction to the halving event can substantially impact Bitcoin’s price and the broader cryptocurrency market.

For example, during the 2020 halving, institutional investors’ growing interest in Bitcoin as a hedge against inflation and macroeconomic uncertainties contributed to its price increase.

2. Bitcoin Miners' Revenue From Fees Rises Suggesting Onset of Major Bull Run

The two-year "Z-score" for miner revenue from fees has turned positive after a long time, signaling new waves of adoption.

Bitcoin's (BTC) 60% year-to-date surge may be only the first milestone in its upward journey, as miner revenues from transaction fees are rising.

The two-year "Z-score" for miner revenue from fees, an indicator used to identify periods of high and low transaction fees, has turned positive for the first time since mid-2021, according to data source Glassnode.

The positive flip suggests miners' revenue from transaction fees is deviating higher from the two-year mean in a sign of increased network demand. Historically, a return of high fees has coincided with the beginning of major bull runs.

"Bolstered by a new demand from Ordinals and Inscriptions, the 2yr Z-Score for miner revenue from fees has turned positive," Glassnode's lead analyst, James Check, said in a weekly market update.

"Elevated fee pressure is a common precursor to more constructive markets, coincident with new waves of adoption, expressed via increasing demand for blockspace," Check added.

The Z-score measures the number of standard deviations from the two-year mean fee revenue. The Z-score is usually positive and rising during bull runs and negative during bear runs.

Bitcoin miners solve complex algorithmic puzzles to verify and add new transactions to the blockchain or distributed ledger in return for rewards paid in BTC. In addition, miners also receive a portion of transaction fees.

Fees are a function of transaction size and network volumes (how congested the network is). Transactions are processed in blocks, storing up to 1 megabyte of data. Hence, a sudden spike in activity often leads to network congestion – transactions waiting to get verified. In such situations, miners target transactions with higher fees first. In other words, the more a user offers in fees, the faster his transaction is likely to be verified.

3. How to boost mining revenues with hashrate marketplaces

In the busy crypto mining sector, optimization is critical. With slim profit margins and demand for optimal computing power, all tools for increased results are welcome. As miners try to scrape reasonable profits, they usually turn to traditional mining pools. These pools let miners combine their hashing power and, as a result, provide more frequent rewards compared to solo mining. However, there are more options out there.

Another option miners have is selling their hashing power. Hashing power is the computing power of hardware (ASICs) used to solve different hashing algorithms that some cryptocurrencies are based on. Selling hashing power is possible by selling the hashrate through a marketplace. In this case, the miner’s profits are driven by the buyer's demand instead of the difficulty and coin price.

What is a hashrate marketplace?
Hashing power sellers and buyers can meet at a hashrate marketplace to sell or buy hashing power. A buyer buys the hashrate and directs it to a chosen pool. A buyer then receives the cryptocurrency rewards through the chosen pool without owning mining hardware. The owner of the ASICs (miner) selling the hashing power, in turn, gets paid by the buyers for providing this hashing power. The seller is paid in real-time for each and every share sent towards the buyer.

Selling hashrate can be alluring for mining hardware owners, as the buyer pays in Bitcoin. Hence, the buyer takes the risk of mining or not mining the block. If the buyer manages to solve a block alone, they receive the entire block reward of 6.25 BTC when mining Bitcoin. On the other end, the owner of the mining hardware gets paid the average price of all the orders regardless of whether a block is mined or not. This eliminates the luck factor of mining pools.

The volume of orders results in steady income for the hardware owner, as the seller’s pay is a combined average of the marketplace orders. These are among the reasons miners may find selling their hashing power an interesting option instead of joining mining pools.