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- The fourth-ever bitcoin "halving" event is set to take place this week.
- Previous halvings have powered the crypto higher by cutting the number of new tokens in circulation.
- Bitcoin hit a record high last month — and some analysts believe it could soon get to six figures.
It's been a big year for bitcoin.
In January, the Securities and Exchange Commission finally gave its seal of approval to 11 spot ETFs after months of speculation.
The following month, the token surged nearly 50% — and then in March, its price hit a new record high of more than $69,000 for the first time since November 2021. (It's given up some of those gains since, but is still up over 50% year-to-date.)
Next on the horizon is the fourth bitcoin "halving" (or halvening, if you prefer your crypto events to sound like Hollywood horror franchises), which is expected to take place sometime this week.
What is the halving?
New bitcoins are produced by a process known as "mining," where computers solve complex mathematical problems to validate and secure transactions on the cryptocurrency's network.
In a halving event, the reward for mining new blocks is cut in half. Halvings are scheduled to happen once every 210,000 blocks — and it typically takes around four years to mine that amount.
The halving's purpose is to gradually reduce the rate at which new bitcoins are generated, ultimately capping the total supply at 21 million, as laid out in the cryptocurrency's original white paper.
During bitcoin's lifespan, there have been three previous halvings:
- In the first halving, in November 2012, the reward for each mined block fell from 50 bitcoins to 25 bitcoins.
- In the second halving, in July 2016, the reward dropped again to 12.5 bitcoins.
- In May 2020, the reward was again halved, this time to 6.25 bitcoins per block.
Analysts expect the next halving event, where the reward will fall once more to 3.125 bitcoins per block, to happen on either April 19 or 20.
How will it affect bitcoin's price?
The halving is designed to maintain bitcoin's scarcity — and simple market economics dictate that an asset's price benefits from supply falling.
Previous halvings have been no exception to that rule, with bitcoin climbing to new highs in the aftermath of each event. Last time out, its price surged from under $9,000 to about $60,000 in under a year.
Some on Wall Street aren't so confident the cryptocurrency will repeat that feat. JPMorgan warned last month that its price could fall as low as $42,000, or over a third, this time around due to higher production costs.
But perhaps the fact that the world's largest bank by market value is paying attention to what was at one point a niche crypto market event is a sign of how high bitcoin's stock has risen in recent years.
"More ETFs are coming, which is increasingly institutionalizing the crypto asset class," Deutsche Bank's Jim Reid said last month in a research note.
"Other things to watch are the fourth bitcoin halving in April, where the new coins available to miners halves to maintain scarcity, and also more clarity on regulation coming up."
"Whether you're a cynic or a convert, whether you think it's cheap or in a bubble, what's clear is that bitcoin is becoming increasingly institutionalized," Reid added.