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.
