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What is halving - a brief reminder:
May 14, 2025
Why does the entire crypto market freeze every four years? Discover how the programmed "halving" of Bitcoin turns digital coins into a rare resource, stirs prices, and reshapes the strategies of miners and investors. We will reveal the secrets of past cycles and hint at what to expect from the next one!
Strategic Marketing Manager
Introduction
• Halving (Bitcoin halving) is a programmed event in the Bitcoin protocol, where the reward for miners for a new block is cut exactly in half after every 210,000 blocks (approximately every four years). It is not the fee that decreases, but rather the so-called base subsidy (block subsidy) — the part of newly issued "fresh" bitcoins that enters circulation. This mechanism has been built into the network's code from day one and is one of the main differences between Bitcoin and traditional fiat currencies, whose issuance can be altered by the decisions of central banks.
Technical mechanism: how everything works under the hood:
• Simple algorithm. The Bitcoin client source code contains a constant subsidy = 50 100000000 satoshis, as well as the formula subsidy >> (height / 210000). That is, every 210,000 blocks, a binary shift "divides" the amount by 2.
• Independent of hashrate. If the network's computational power (hashrate) increases or decreases, the time between blocks still tends to 10 minutes due to difficulty adjustments. Therefore, the average interval of 210,000 blocks remains around 3 years and 9 months.
• Distribution over time. A total of 33 halvings are planned; after the 32nd halving, the subsidy will become < 1 satoshi, and the last crumbs will be mined until 2140, until we reach 21 million BTC.
Extended timeline of events:
• January 3, 2009. — Genesis Block. The first subsidy of 50 BTC per block was laid by Satoshi Nakamoto.
• November 28, 2012. — Halving #1. Reduction to 25 BTC. At that time, about 10.5 million coins were in circulation.
• July 9, 2016. — Halving #2. Drop to 12.5 BTC. Issuance slows down, and by the end of 2016 about 16 million BTC are circulating.
• May 11, 2020. — Halving #3. Subsidy of 6.25 BTC. Pandemic, U-shaped recovery of stock markets, and a historic bullish trend in cryptocurrencies.
• April 19, 2024. — Halving #4. Current subsidy of 3.125 BTC. At the time of the event, about 19.68 million BTC have been mined – over 93% of the maximum supply.
• Around 2028. — Halving #5. Expected reduction to 1.5625 BTC. The date may shift by a few weeks depending on the hashrate dynamics.
(Each new "step" in issuance clearly demonstrates the declining rate of inflation: from 50%, when the subsidy drops from 50 to 25, to 0.1% in the 2040s, when the reward becomes tens of satoshis).
Economic logic and the goal of "reducing inflow"
1. Protection against unpredictable issuance. Bitcoin creates a "monetary policy without people": the rules are unchanged without the consensus of the network.
2. Imitation of digital "gold". Just as the stock of gold grows slower than the amount of metal already mined, the emergence of new BTC decreases, enhancing the status of a scarce asset.
3. Incentive for early participants. Early miners (and buyers) receive coins at a low-risk price; latecomers buy from them a now scarcer resource.
How halvings impacted price: a retrospective look:
• 2012 → 2013. Twelve months after the first halving, BTC rose from approximately $13 to over $1000 — the birth of the first widely covered "bull run".
• 2016 → 2017. After 18 months, the price increased from approximately $650 to $19,500, then suddenly corrected down by almost 80%. This cycle solidified the opinion that halving anticipates multiple growth, but does not provide stability without fundamental demand.
• 2020 → 2021. The corona crisis and unprecedented Fed stimulus led to a massive search for a "digital safe haven": the price rose from approximately $9,000 to $69,000, then corrected again.
(One cannot claim that halving guarantees growth. However, it is statistically noticeable that the period following the event is often accompanied by a rise in historical maximums (ATH)).
Impact on mining and difficulty:
• Equipment profitability. At the same Bitcoin price, the gross dollar income of a miner is halved if they rely solely on subsidy. Price or fee increases can compensate for this.
• Race for efficiency. Old ASIC devices become unprofitable faster; the industry is forced to transition to more energy-efficient chips and cheap electricity (e.g., hydro- or nuclear power).
• Difficulty correction. If part of the miners turns off, the average block time slightly exceeds 10 minutes, but the next difficulty reallocation evens out the interval. In the medium term, hashrate usually recovers, reflecting the rising cost of BTC and the entry of new installations into the market.
Halving and Stock-to-Flow (S2F):
The Stock-to-Flow concept is taken from commodity markets and applied in the crypto world by PlanB. Stock is the existing supply of the asset, Flow is the increase per year. After each halving, the annual inflow decreases while S2F increases:
• 2012.: S2F ≈ 12 — closer to silver.
• 2016.: S2F ≈ 25 — comparable to gold in the 90s.
• 2024.: S2F ≈ 110 — higher than any precious metal.
(Although the linear correlation of S2F and price in the long run has become controversial (especially after the "deviations" of 2022-2023), the model emphasizes the idea of scarcity as a factor in price pressure).
The Role of Fees: The Transition Period After 2032:
• The reduction of subsidies makes fees an increasingly significant part of the rewards. Even now (with the rise of Ordinals, BRC-20, and Layer-2 solutions), fees are temporarily able to surpass the subsidy.
• Network Security. There are concerns about whether the fees will be enough to maintain a sufficient hash rate. Advocates of strict monetary policy argue that at prices in the hundreds of thousands of dollars, even fractions of BTC in fees will provide miners with comparable profits.
• Mempool and Transaction Competition. The lower the subsidy, the more sensitively users react to the cost of including transactions in blocks. This encourages the development of off-chain solutions like the Lightning Network and state channels.
Comparing Bitcoin with Other Cryptocurrencies:
• Ethereum (after the "Merge"). The transition to Proof-of-Stake reduced emissions by burning part of the fees (EIP-1559). Informally, this is referred to as "ultrasound money," although the issuance depends on the volume of transactions, not a programmed "halving."u0009
• Litecoin. It uses a similar halving cycle, but every 840,000 blocks (≈ 4 years). The effect on the market is less noticeable due to lower liquidity.
• Monero. Instead of sharp jumps, it has an exponential tail emission — after May 2022, the emission remains stable at ≈ 0.6 XMR per block forever, providing a minimal incentive for miners.
(Such diversity shows that "hard" or "soft" reductions in supply are just one of the possible paths of monetary design).
Criticism and Common Misconceptions:
• "Halving is already priced in" — yes, the market knows the dates, but the psychological effect and the decrease in actual selling pressure (from miners) still change the supply/demand balance.
• "Without a subsidy, the network will die". The argument of opponents: fees may turn out to be too low. The response of supporters: by that time, the user base and the value transfer costs in the network will grow enough that even small fees in BTC will ensure profitability.
• "Halving is not important; macro factors determine everything". Background factors, of course, are critical (Federal Reserve rates, regulations, liquidity), but halving remains a unique programmed constant that any fundamental analysis of BTC must take into account.
Regulatory Context (2024-2025):
• USA. The simultaneous appearance of Bitcoin ETFs (January 2024) and the fourth halving has intensified institutional demand. SEC fees on ETFs have created a new class of long-term holders.
• EU. The MiCA regulation has already been adopted; it emphasizes the environmental risks of Proof-of-Work but does not yet impose a ban. The transparency level of mining farms is increasing.
• China. Mining within the country has been banned since 2021, yet Chinese ASIC manufacturers hold leading market shares, exporting equipment to Kazakhstan, Russia, North America, and Latin America.
(This is important because regulations can temporarily reduce hash rates (for example, the migration of miners in 2021 temporarily caused block times to rise to 20 minutes), but in the long-term trend, halving is still executed on schedule).
Practical Conclusions for Investors and Miners:
For Investors:
• Plan for a minimum three-to-five-year horizon; impulses after halving usually stretch out.
• Maintain a liquid "cushion" — the price can drop by 50-80% even in a bullish cycle.
• Monitor not only S2F but also metrics: Net Unrealized Profit/Loss (NUPL), number of active addresses, influx of BTC on exchanges.
For Miners:
• Account for the subsidy decline in your business model: a return on ASIC investment ≥ 18 months becomes risky.
• Look for cheap electricity and thermal recycling (heating greenhouses, data centers): by-products increase margins.
• Keep an eye on the prices for new chip releases (for example, 5-nm or 3-nm) — efficiency growth in J/TH can be the difference between profit and loss right after halving.
The Future After the 33rd Halving:
By 2140, the estimated subsidy will practically disappear. Bitcoin will enter a "mature phase" where the security of the network is supported by fees and valuable L2 transactions. By that time, Layer-2 (Lightning, Ark, Fedimint) and ZK sidechains may provide scaling so that a fee of a few hundred satoshis becomes the norm, and the block weight becomes flexible (potential "adaptive block size").
While this is a hypothesis, it can already be observed:
• Growth in LN channels by tens of percent year-on-year.
• Innovations in ZKP protocols that allow batching thousands of transactions into one entry in a block.
• The trend towards "masternodes" and federative storage that offloads the main layer.
Conclusion:
Halving is not just a date in miners' calendars or a reason for media headlines. It is a fundamental principle of Bitcoin's economic architecture, making issuance transparent and immutable. Each time the subsidy halves, the network clearly confirms that rules are more important than anyone's preferences.
For BTC Holders, this is a reminder:
• Prices may fluctuate, but the number of new coins will be predictably decreasing.
• Scarcity backed by demand can create unique price trends, albeit uneven ones.
For Engineers and Entrepreneurs, this is an incentive:
• To improve energy efficiency, develop Layer-2 solutions, and new services based on the constantly shrinking subsidy.
And finally, for regulators, halving serves as a case study for how "monetary policy in code" is possible and works independently of state borders. Bitcoin shows that predictable rules can compete with centralized solutions, and reduced issuance can become not a threat but a valuable advantage.
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