NEW YORK (AP) — The “miners” who mine mathematically complex bitcoins are taking a 50% pay cut — effectively reducing new production of the world’s largest cryptocurrency once again.

Bitcoin’s last halving took place on Friday night. Shortly after the highly anticipated event, the price of bitcoin remained stable at around $63,907.

Now, all eyes are on what will happen in the future. In addition to the long-term behavior of bitcoin’s price, which depends heavily on other market conditions, experts point to potential impacts on the daily operations of the asset’s miners themselves. But, as with everything in the volatile cryptoversethe future is difficult to predict.

Here’s what you need to know.

WHAT IS BITCOIN HAVING AND WHY DOES IT MATTER?

The Bitcoin “halving,” a pre-scheduled event that occurs approximately every four years, impacts bitcoin production. Miners use sets of noisy, specialized computers to solve complicated mathematical puzzles; and when they complete one, they receive a fixed number of bitcoins as a reward.

Halving does exactly what it sounds like: it cuts your fixed income in half. And when the mining reward drops, so does the number of new bitcoins entering the market. This means that the supply of currencies available to satisfy demand grows more slowly.

The limited offer is one of the main features of bitcoin. Only 21 million bitcoins will ever exist, and more than 19.5 million of them have already been mined, with less than 1.5 million remaining to be mined.

As long as demand remains the same or increases faster than supply, bitcoin prices should rise as halving limits production. Because of this, some argue that bitcoin can counteract inflation — yet experts emphasize that future gains are never guaranteed.

HOW OFTEN DOES HALF OCCUR?

According to the Bitcoin code, halving occurs after the creation of every 210,000 “blocks” — where transactions are recorded — during the mining process.

No calendar date is set, but this is divided approximately once every four years.

WILL HALF IMPACT THE PRICE OF BITCOIN?

Only time will tell. After each of the three previous drawdowns, the price of bitcoin was mixed in the first few months and ended up significantly higher a year later. But, as investors know, past performance is not an indicator of future results.

“I still don’t know how significant we can say the halving is,” said Adam Morgan McCarthy, research analyst at Kaiko. “The sample size of three (previous halving) is not big enough to say ‘It’s going to go up 500% again’ or anything like that.”

At the time of the last halving in May 2020, for example, the price of bitcoin was around US$8,602, according to CoinMarketCap – and rose almost sevenfold to almost US$56,705 in May 2021. Bitcoin prices Bitcoin nearly quadrupled a year after the halving and July 2016 surge. It increased nearly 80-fold a year after bitcoin’s first halving in November 2012. Experts like McCarthy emphasize that other bullish market conditions contributed to these returns.

Friday’s halving also comes after a year of sharp rises for bitcoin. As of Friday evening, the price of bitcoin was $63,907 per CoinMarketCap. That’s below the all-time high of around $73,750 reached last month, but is still double the asset’s price from a year ago.

Much of the credit for bitcoin’s recent rise is given to the initial success of a new way of investing in the asset – Spot bitcoin ETFs, which were only approved by US regulators in January. A research report from crypto fund manager Bitwise found that these spot ETFs, short for exchange-traded funds, saw inflows of $12.1 billion during the first quarter.

Bitwise senior crypto research analyst Ryan Rasmussen said persistently or growing demand for ETFwhen combined with the “supply shock” resulting from the upcoming halving, it could help boost the price of bitcoin even further.

“We expect the Bitcoin price to perform strongly over the next 12 months,” he said. Rasmussen notes that he has seen some predicted earnings reach as high as $400,000, but the “most consensus estimate” is closer to the $100,000 to $175,000 range.

Other experts emphasize caution, pointing to the possibility that gains have already been achieved.

In a Wednesday research note, JPMorgan analysts stated that they do not expect to see post-halving price increases because the event has “already been priced in” – noting that the market is still in overbought conditions according to their analysis of the bitcoin futures.

AND THE MINERS?

Meanwhile, miners will be challenged to compensate for the reduction in rewards while keeping operational costs low.

“Even if there is a slight increase in the price of bitcoin, (halving) could really impact the mining company’s ability to pay the bills,” said Andrew W. Balthazor, a Miami lawyer specializing in digital assets at Holland & Knight. “You can’t assume that bitcoin will just go to the moon. As a business model, you need to plan for extreme volatility.”

The best-prepared miners likely laid the groundwork early, perhaps by increasing energy efficiency or raising new capital. But cracks can emerge for less efficient and struggling companies.

One likely outcome: Consolidation. This has become increasingly common in the bitcoin mining industry, especially after a major crypto crash in 2021.

In its recent research report, Bitwise found that total mining revenue fell one month after each of the three previous reductions. But these numbers recovered significantly after a full year – thanks to spikes in the price of bitcoin, as well as the expansion of their operations by larger miners.

Time will tell how mining companies fare after this latest halving. But Rasmussen is betting that the big players will continue to expand and use the industry’s technological advances to make operations more efficient.

WHAT ABOUT THE ENVIRONMENT?

Identifying definitive data on the environmental impacts directly linked to the bitcoin halving is still a question mark. But it’s no secret that crypto mining consumes a lot of energy in general – and operations that depend on polluting sources have raised particular concern over the years.

Recent research published by the United Nations University and Earth’s Future magazine found that the carbon footprint of bitcoin mining between 2020 and 2021 in 76 countries was equivalent to emissions from burning 84 billion pounds of coal or operating 190 power plants. of energy powered by natural gas. Coal met the majority of bitcoin’s electricity demand (45%), followed by natural gas (21%) and hydropower (16%).

Environmental Impacts of Bitcoin Mining largely come down to the energy source used. Industry analysts say efforts to use more clean energy have increased in recent years, coinciding with growing calls for climate protections from regulators around the world.

Production pressures may cause mining companies to look to cut costs. Ahead of the latest halving, JPMorgan warned that some bitcoin mining companies may “seek to diversify into low energy cost regions” to deploy inefficient mining rigs.

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