The new year is expected to be a big year for crypto investors with the Bitcoin halving expected in April 2024. If you haven’t heard about Bitcoin halving before, don’t worry! We’re here to explain that to you, and how you should prepare yourself so you make the most of it.
What is Bitcoin halving?
Bitcoin halving is an event programmed into the Bitcoin protocol that occurs approximately every four years or after every 210,000 blocks are mined. During a halving, Bitcoin miners’ reward for validating and adding new blocks to the blockchain is cut in half. This reduction in the reward is a key feature designed to control the issuance of new bitcoins and limit the total supply to 21 million.
The initial reward when Bitcoin was launched in 2009 was 50 bitcoins per block. The first halving occurred in 2012, reducing the reward to 25 bitcoins. The second halving occurred in 2016, further halving the reward to 12.5 bitcoins. The third halving occurred in May 2020, reducing the reward to 6.25 bitcoins.
Bitcoin halving is significant for several reasons:
Supply Control: It introduces a controlled and predictable supply of new bitcoins into circulation. This scarcity is often compared to precious metals like gold.
Market Impact: Halving events can influence the supply and demand dynamics of Bitcoin, potentially affecting its price. Some investors anticipate that a reduction in the rate of new bitcoin issuance may lead to increased scarcity and, in turn, impact the market value.
Mining Economics: The halving has direct implications for Bitcoin miners, as their rewards are reduced. Miners must adapt to these changes, and the event can influence the economics of Bitcoin mining.
Overall, Bitcoin halving is a key aspect of the cryptocurrency’s design, aiming to balance the creation of new bitcoins while maintaining scarcity.
How has Bitcoin price been affected by halving in the past?
There have been three halving events in the lifespan of Bitcoin. The following table shows price movements during these events:
| Halving Date | Price Before Halving | Peak Price After Halving | Peak Price Achieved In |
| November 28, 2012 | $12.35 | $270 | April 2013 |
| July 9, 2016 | $650 | $20,000 | December 2017 |
| May 11, 2020 | $8,800 | $64,000 | April 2021 |
This price history can make it easy to believe that Bitcoin begins to rise after a halving event, and peaks in approximately one year following the event. This is also the case for other cryptocurrencies whose prices tend to correlate with Bitcoin price fluctuations. However, it’s important to note here that correlation does not necessarily mean causality, and there is no reason for us to be certain that this halving event would lead to the same outcomes as the ones in the past, or that another cryptocurrency might also make the same gains during the coming halving event.
What could go wrong when investing in crypto in the coming year?
There are many things that could go wrong with your cryptocurrency investment in the coming year. The main concerns that investors have are:
Bitcoin Disruption: Cryptocurrencies like any other technology, might become obsolete with new innovative technologies that are developed. An example could be breakthroughs in Quantum Computing could lead to the development of new technologies that render the blockchain inefficient and offer a much better alternative to decentralized currency.
Viability of Mining: If Bitcoin and other cryptocurrency prices don’t increase enough to make it financially viable for cryptocurrency mining operations to continue their activities, we may see bankruptcies and liquidation of large cryptocurrency mining companies which could lead to a further dip in prices as companies sell off holdings and flood the market.
Environmental Impact: The main costs of cryptocurrency mining are the amount of energy consumed and the cost of hardware. At the time of writing, the Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin alone consumes approximately 156 Terawatt Hours of electricity in a year. This is equivalent to the entire electricity consumption of countries like Poland or Malaysia. With the sustainability of cryptocurrencies coming into question, regulators may be forced to discourage the growth of the industry.
Regulatory Concerns: Regulation could make or break the cryptocurrency industry. We are seeing heavier regulation of cryptocurrencies in countries such as the US and Canada. This is important because clear regulations could legitimize the market, while ambiguous regulations could inhibit growth.
Interest Rates: The rate hike cycle appears to be coming to an end, but increasing interest rates have been detrimental to the price of cryptocurrencies. This is because higher interest rates make money more scarce, bringing down the demand for all goods and services, not just cryptocurrencies. Though this isn’t a concern for 2024, it’s important to follow before making any investment decisions.
What could go right?
The pitfalls we discussed earlier don’t necessarily mean you should stay away from a crypto investment, it only means that you should calculate your risk and make an informed decision when investing in cryptocurrencies. If the halving leads to an increase in the prices of cryptocurrencies, you could see gains as high as 6x, 10x, or even higher. If you plan your investment correctly, these gains could be re-distributed into a less volatile portfolio that could go a long way in helping you reach your retirement goals or any other major financial goals that you may have set for yourself. Cryptocurrency is a highly speculative investment, and high risk means the possibility of high reward.
How should I invest in cryptocurrency?
The core principle that should drive a decision in cryptocurrency investing, or investing in any other asset, should be your risk appetite. Risk appetite is different for everyone, but general guidelines would suggest that younger individuals should have more of a risk appetite than older individuals because they have more time to recuperate from the loss. Similarly, individuals who need their investment back sooner rather than later should have a smaller risk appetite.
We’re not going to discuss issues like educating yourself and staying safe from scammers and hackers here because we’ll discuss them in another article, instead, we’ll focus on how you can protect yourself from losses that could be difficult to recover from.
1. Develop a short-term and long-term financial plan: if you don’t already have one, developing a financial plan sets the foundation on which you should be making any financial decisions. It is important to be skeptical of free financial advisors who tend to be salespeople for insurance companies or multi-layered marketing groups to ensure that the advice you’re getting prioritizes your needs and goals. Saving for your goals and for your future is a need, not a luxury, and until you’re fulfilling that need, you should not be gambling away your investment budget on risky investments.
2. Decide the source of funds for your crypto investments: once you’re satisfied that you’re saving enough for your future, you can use the leftover amount in your budget to begin buying crypto assets. Do not let greed and FOMO drive your investment decisions. Being a speculative and volatile investment, cryptocurrencies could skyrocket or become worthless without warning.
If you do not have enough income to make a meaningful investment and are instead considering using your savings to invest, it might be a better idea for you to invest your savings into a more secure and stable investment that pays dividends, and use the dividends to invest in crypto instead. That way, any gains you make will add to your savings, while any losses can be taken without setting you back too much financially.
3. Realize your gains: If you’re lucky and you see the price of your investments rise by more than double, cash out at least a proportion of your investment even if you think prices will continue to rise. A good number to consider cashing out is your initial investment + 7% annualized. This is the average return you would have received if you had invested the amount in more secure index funds or ETFs.
This is probably one of the safest ways to invest in cryptocurrencies. You won’t see as much return as you would if you sink all of your net worth into crypto, but if you make any losses, they won’t be enough to set you back financially or stop you from fulfilling your financial needs down the line. If you feel you can afford to have a bigger risk appetite, it is best to discuss any strategies with a professional financial advisor so you can fully understand the possible outcomes of any investment decisions.
Interested in learning how to buy stocks in the US or Canada? Our guide can teach you how to do it right and avoid making mistakes that can set you back financially.
Disclaimer: The information provided is for general informational purposes only and should not be considered as professional financial advice. The content is not tailored to any individual’s financial situation or investment objectives. Before making any financial decisions, it is recommended to consult with a qualified financial advisor who can provide personalized advice based on your specific circumstances. Any reliance on the information provided herein is at your own risk. The content may not be up-to-date, and we do not guarantee its accuracy. Investing in financial markets involves risk, and past performance is not indicative of future results. We disclaim any liability for any financial loss or damage arising from the use of the information provided. Always conduct thorough research and consider seeking professional advice before making any financial decisions.