The halving should boost Bitcoin demand
We’re getting very close to the latest halving of Bitcoin (BTC 0.01%). For those unfamiliar, a halving is an event in which the rewards for mining a cryptocurrency are, yes, cut in half.
The main goal of a halving is to reduce the supply of a coin or token, especially in the case of Bitcoin, whose supply will eventually be capped at 21 million coins. A halving occurs with the coin every time 210,000 blocks, representing sets of transactions, are created.
Specifically, miners will receive 3.125 Bitcoin for every new block on the chain they complete, down from the current 6.25. Most likely, the halving will occur at some point in April.
As any investor of any type of asset well knows, when the supply of a desirable good, service, or investment declines, demand tends to rise. This is the basic formula behind price rises.
So it’s no surprise to learn that Bitcoin’s price climbed notably just after its three previous halvings. In the most recent one in May 2020, six months after the event Bitcoin’s price was up by 79%. One year following the halving, it traded an eye-watering 547% higher.
Following the leader
There are no guarantees in the world of investing, of course, and we’ve all heard the warnings that past performance is no guarantor of future success. Right now, though, Bitcoin and any asset associated with it look like very solid bets.
The rush into spot Bitcoin exchange-traded funds has cooled, but their coffers are still bulging and helping to support the elevated price levels of the coin. The U.S. and global economies are continuing to provide gusty tailwinds, with inflation becoming less of a worry seemingly every day and Federal Reserve officials still apparently determined to cut interest rates, although not immediately.
Finally, for more than a few investors, Bitcoin is not only the asset representing the crypto space; it’s the only one they’re willing to buy. It helps that investing in those spot ETFs is quick and easy.
All this very much supports the work of BTC miners. As long as investors continue to believe in the coin, the price of those digital earth-diggers should keep defying gravity.
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