'Rat race to the bottom': How Bitcoin's 'halving' could crunch crypto miners
After the launch of 11 ETFs in January, the "halving" is the biggest Bitcoin event of the year.
The upcoming Bitcoin "halving" is being ushered by believers as a new era for the cryptocurrency that will shoot its price up and keep it there. That will be nice for those who invest in Bitcoin, but crucial for those who mine the stuff. The halving means Bitcoin's price will need to rise dramatically for companies that mine the cryptocurrency to maintain profitability.
Estimated to take place on April 19, “the halving” will see the amount of new Bitcoin produced go down by 50%. Currently 900 new Bitcoin are created each day. Come April 20, that will go down to 450.
“All of a sudden you’ve got a reduction in issuance from about 1.8% annualised to 0.9% annualised,” said Benjamin Celermajer, chief investment officer of Magnet Capital. “It creates a new dynamic in the market where there’s different supply-side pressures.”
That new dynamic centres around Bitcoin miners, who maintain the cryptocurrency’s blockchain. Bitcoin’s system works by issuing an incredibly complex puzzle every 10 minutes, which miners try to solve with powerful computers running specialised software. If one of their rigs cracks the code, they win the right to verify a new block of transactions and add it to the chain. Right now they’re rewarded with 6.25 Bitcoin (about USD413,000 or A$620,000). In less than 3 weeks that reward will be reduced to 3.125 Bitcoin (A$310,000).
