Rather than being determined by dates, a halving event automatically happens when the number of blocks that the network has processed reaches 210,000.
The first Bitcoin halving took place on Nov 28, 2012, and saw the block reward drop from 50 Bitcoins to 25 Bitcoins. The second halving took place on July 9, 2016, and saw the block reward being cut from 25 Bitcoins to 12.5 Bitcoins. The third halving took place on May 11, 2020, and brought the mining rewards down from 12.5 Bitcoins to 6.25 Bitcoins.
The latest took place on April 19, 2024 and brought the mining rewards down from 6.25 Bitcoins to 3.125 Bitcoins.
The reason for halving events is that Bitcoin is finite. There will only ever be 21 million Bitcoin in existence – this was written into the code when it was first created. The halvings will continue until all Bitcoins have been brought into existence through the block rewards, which means it could take until the year 2140 to complete the mining.
Each event, however, presents challenges for the profitability of miners, who face decreasing rewards for their efforts.
Halvings lead to increased attention and speculation on the crypto world and how they will affect market value.
The events reduces the incentive for ‘bitcoin miners’ to continue their activities, this can create a supply shortfall if demand stays steady or increases. This has typically led to an increase in the price of Bitcoin.
In the month before the most recent halving event in April 2024, the price of Bitcoin hit an all-time high, rising past $69,000 (£54,353) for the first time in its history and surpassing the previous record reached in November 2021.
However, price rises were partly prompted by a move in America to allow US securities firms to launch ETFs that invest in Bitcoin, bringing cryptocurrencies further into mainstream investing.
Since the US regulator the Securities and Exchange Commission (SEC) authorised the first spot Bitcoin ETFs in January, several funds have been launched including ETFs from major brands such as BlackRock, Fidelity and Invesco.
After the previous Bitcoin halving in May 2020, the cryptocurrency market went on a bull run, with the price of Bitcoin increasing fivefold in the next calendar year.
The limited number of Bitcoins that can enter circulation makes them a so-called “scarce asset”, which for some people is enough to make them valuable.
Simon Peters, cryptocurrency market analyst at investment platform eToro said: “The cap on the number of Bitcoins is actually less than 21 million. This number is closer to 17 million because so many have been lost on hard drives and memory sticks where investors have mined their own Bitcoin or taken it into custody themselves, rather than holding it via a platform.
“Scarce assets, such as crypto, property and gold, are attractive to investors because generally they increase in value. The halving events in crypto mean there are known price changes coming, with the peak increases coming around 12-18 months after such an event. The squeeze on supply has definitely had an impact, though there are many other factors to prices with crypto being a global asset.”
Cryptocurrency markets are notoriously difficult to predict with big price swings occurring, sometimes without much warning. Timing an investment is a full-time job and even then it’s impossible for a professional to know exactly where the market is going.
As a halving event approaches, existing investors could consider offloading some Bitcoin if they needed to raise cash for something or wanted to take profits.
But again, you need to factor in that cryptocurrency prices are extremely volatile and unpredictable so you can’t bank on prices rising as they have done in the past as external, wider economic factors count.
Don’t forget that there are tax implications of selling off Bitcoin, which should be a consideration in terms of timing. Cryptocurrency is treated as a form of investment, and regulated in a similar way to stocks and shares.
As such, profits on selling some or all of your crypto holdings will trigger capital gains tax (CGT) over and above the £3,000 annual CGT allowance.
In December HM Revenue and Customs (HMRC) launched a voluntary disclosure campaign, encouraging investors who had not declared any gains from crypto assets to come forward and pay up.