Bitcoin has been having a terrific run this year. In just two months, its price has soared 40% to more than $62,000, putting it in striking distance from its all-time high of about $69,000.
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Its rally this year is partly due to the U.S. Securities and Exchange Commission approving spot bitcoin ETFs in January. These exchange-traded funds tied to the price of bitcoin allowed investors to enter the bitcoin game without the risk of directly buying the still controversial cryptocurrency.
More than $6 billion have entered the market since spot bitcoin ETFs began trading in the U.S. this year. The largest one, Grayscale Bitcoin Trust, rose 48% since January.
And that’s not all. An upcoming technical event known as “halving” is set to keep bitcoin surging even further in the coming months.
In April, the reward miners get for minting new bitcoin will be cut in half, from 6.25 bitcoin to 3.125. This happens every four years and will continue until all 21 million bitcoins are mined.
Halving was written into bitcoin’s code from the beginning to ensure scarcity and safeguard from inflation. Previous halving events coincided with huge price increases for bitcoin.
Here’s everything you need to know about the upcoming halving event.
🪙 What is bitcoin?
Let’s start with some bitcoin 101. Bitcoin is the first cryptocurrency, created in 2009. It is a digital, decentralized currency that is not associated with any government or financial institution. To ensure its security and protect against fraud, bitcoin uses a technology called blockchain to track transactions.
The blockchain works like a ledger in which every bitcoin transaction is stored in what is called a block. The authenticity of transactions stored in a block are verified by complex math problems that require computer power to be solved. Once the problems are solved the block gets added to the end of the chain.
⛏️ How are new bitcoins mined?
New bitcoins are added to circulation every time a block is added to the chain. Individuals or businesses, known as miners, compete with each other to solve these math problems. They are currently rewarded 6.25 bitcoins, worth about $388,000, for their efforts.
½ What is halving?
Halving refers to a technical event that occurs about every four years or so. As part of bitcoin’s code, after every 210,000 blocks are added to the chain, the mining reward is cut in half. This was done to slow down the pace at which supply of bitcoin can be added to circulation.
The number of bitcoins that will ever be created is capped at 21 million, as a way to mimic finite resources like gold.
The next halving event is expected to take place this April, when the mining reward is set to be cut to 3.125 bitcoins.
📈 How does halving impact bitcoin’s price?
Each of the three halving events so far resulted in price increases in the following months. The last halving took place in May 2020, when bitcoin was priced at around $8,750. Six months after the halving, bitcoin’s price grew 79%, and a year later it was up a whopping 547%.
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