The Bitcoin halving event is set to take place today (19 April) in what will prove to be a pivotal moment for the world’s largest cryptocurrency’s future.
Halving of Bitcoin mining occurs every four years and is set in place to change the cryptocurrency’s underlying blockchain technology infrastructure to slow down the current rate of which Bitcoin is mined.
The blocks of which Bitcoin is mined and built from – which gives miners additional rewards – is capped at 210,000, which is in place so halving can take place in the four-year timespan.
During halving, the number of Bitcoin available cuts in half in an effort to halt the production of the cryptocurrency and lower its value so it is not accelerating at a rate that could put the total number of available Bitcoin near its 21 million capacity.
When it was founded in 2008 by Satoshi Nakamoto, he mandated that Bitcoin has a total cap of 21 million, to never be exceeded. It is believed that the current overall total stands at 19 million.
Halving would therefore decrease the value of the world’s largest digital currency as consumption would begin to slow down. However, Bitcoin has reached new heights as of recent months, with its valuation topping over $73,000 in a new all-time record.
This surge in price for Bitcoin can be largely attributed to the spot ETF launch the US Securities and Exchange Commission (SEC) approved last January, with giant asset firms such as Blackrock and Grayscale launching their own sport ETFs on securities exchanges.
However, the Bitcoin halving may not be as detrimental to the long-term price, rather, data shows from the last three previous halving that the valuation dramatically grew a year after.
According to ProShares, it revealed that the first halving in November 2012 grew the price by 8,574% from $2.55 to $1,056 in 2013. The next halving in 2016 saw a large surge in price again, from $270 to $2,528 in 2017, a 389% increase.
The last halving event was 11 May 2020, which again saw a major increase in value. Bitcoin rose by 659% a year after, from $6,291 to $59,911.
But whilst the long-term impact may not be as negatively impactful on the surface level, critics of Bitcoin mining will once again be vocal of the enormous amounts of carbon produced to mint the cryptocurrency.
The electricity consumption of Bitcoin mining supersedes that of some countries in their entirety and has been a cause of concern by many in the industry.
Nick Jones, CEO of crypto company Zumo, acknowledges the carbon emission and electricity consumption that will be caused by the halving event, and believes that financial institutions and miners “should start thinking more carefully about how they can harness the latest technology”.
He said: “It’s hard to predict the exact impact of the halving on Bitcoin’s electricity consumption.
“All else being equal, the halving reduces miners’ income, making it less attractive to invest in more energy efficient technologies. But if Bitcoin’s price then subsequently doubles, the block reward measured in dollars remains the same, and so the more responsibly minded miners may decide it’s the right time to shift to a greener approach to future proof their operations.
“According to our research with the Crypto Carbon Ratings Institute (CCRI), as of March 2024, the annualised carbon footprint of all physically-backed Bitcoin fund products stood at 4487.93 kilo tons of carbon dioxide (ktCO2). To put this into context, this is equivalent to a person flying from London to New York and back over 1.5 million times!
“And this is set to grow further with the likes of the London Stock Exchange (LSE) and the Hong Kong Securities and Futures Commission (SFC) now announcing their intention to accept crypto fund products.”
Through the success of the US spot ETFs, the LSE and SFC are now getting on board with cryptocurrency trading on regulated listed securities exchanges, as crypto becomes more mainstream.
But as the sector continues to break through this barrier, the obvious question will be asked of how sustainable is the mining process for these cryptocurrencies for Environmental, Social and Governance (ESG).
The Ethereum blockchain, which processes the second-largest cryptocurrency ETH, took a revolutionary stance on this sustainability issue. In September 2022, the Ethereum merge took place, meaning that its Bellatrix update to a proof-of-stake process drastically cut the energy consumption of ETH mining.
Jones believes that as crypto becomes more accepted by the mainstream, it may have to fall in line with ESG governance regulations and investors will have to begin to consider the energy consumption of mining.
He continued: “As crypto moves mainstream, everyone involved in the growing ecosystem – whether miners or the financial institutions offering new digital asset propositions – should start thinking more carefully about how they can harness the latest technology to embed sustainability at the heart of their propositions.”
“This sits in line with evolving investor sentiment as well as new regulations, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), which requires companies to report Scope 3 emissions.
“It can’t be ignored.”
