Bitcoin Forum

Can someone explain the significance of the upcoming Bitcoin halving and its potential impact on the market?

Bitcoin has a maximum supply of 21 million coins. This is fixed.

Until today approximately 19.5 million coins are in circulation, which is ~93% of the total coins that will ever exist.

Every ~10 minutes on average, a block is found and the reward for finding the block adds 6.25 new bitcoins to the 19.5 million that already exist.

But before 2020, the exact same process was adding 12.5 new bitcoins. And before 2016 it was adding 25 new coins. And before 2012 it was adding 50 new coins.

You see that the flow of newly generated coins is decreasing and it doesn't decrease slowly! In April 2024, the reward will be 3.125 Bitcoins. So, essentially the rate at which bitcoin enters the market will decrease 50%.

Now, this will definetely impact the market because the "need" for more bitcoins will stay the same but bitcoin itself will become more difficult to find. In simple terms, there are two main factors that drive the price of a scarce asset. The generation rate and the demand. Assuming demand will remain the same and hopefully it will go much higher, then the generation rate works in the exact opposite way. If it decreases, the product is more rare and therefore more valuable!

But, don't forget that if demand decreases, then this will impact bitcoin's price negatively.

To understand this, you first need to know what actually happens during the bitcoin halving season.  Currently we have gone through three halving seasons and the next halving season is just around the corner. What Bitcoin halving season actually does is reduce the reward of each block by half.  You will understand by looking at the picture below.
https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcTLiAsdSsJWE5O0tz_DF9bUNKOsG34thA5TyKMn_P6uSnl9eUkoiNWmWEs&s=10
And the potential effect on Bitcoin's price is mainly after the halving season ends.  Because rewards are reduced and as a result miners have to sell bitcoins for their mining cost and as a result we see an effect on the price of bitcoin.

So as per the graph whenever Halvin emerges, price goes up? but you say rewards are reduced and then miners have to sell their bitcoins. I still don't understand this?

This is kinda complicated to me.I should read more article about this. as a summary. as you say whenever bitcoin halving emerges, Bitcoin price goes down?

One if the significance is that halving makes people to fomo, become bulls and some months after would be the start of bull run. But normally as apogio explained it up there, it is correct, the supply is reduced and bitcoin will become scarcenthan if the mining reward is not reduced.

Likely bitcoin price will go up after halving. In past, after halving, bitcoin price went up. It was caused because the mining reward was reducing and more people were buying as the adoption continues, therefore increasing the price.

The major impact on the market shell find the expression in the price increase by reason of  reduced Bitcoin volume injected by each block after halving event. The side effect, which is envisaged by me, will be the increase of institutional's share of the market.

A total of three halvings have taken place since Bitcoin entered the market, with the serving years being 2012, 2016, and 2020. The halving happened in 2020 and we will go to the second halving in 2024. Bitcoin halving starts every 4 years, and every time bitcoin price increases after halving. So we are close to the next bitcoin halving which is going to happen around May 2024. If you want to know more details then you can definitely visit here all information about bitcoin halving is given here.

Bitcoin Halving Details: https://www.tradingview.com/chart/BTCUSD/4ocD1Cgi-Bitcoin-Halving-Cycles-Cycle-Bottom-to-Previous-ATH/

Half of the reward of bitcoin mined is received by the miners during this period, new bitcoins were introduced, the supply of bitcoin reduces, the demand of bitcoin rises and many are holding to increase the demands and as this happens, the market price increases and those already holding make profits in that as the value appreciates and they begin to sell, and from there hence the market begin to come down and remain as volatile as it has always been.