Bitcoin can go through significant turning points with ‘halving’ events that occur every four years on the network, which result in the mining reward being cut in half. These events have a major impact on the dynamics of the Bitcoin network.
Before the year 2020, miners received a reward of 12.5 BTC for successfully mining a block. The reward, which was set at 50 Bitcoins per block in 2009, was reduced to 25 Bitcoins in 2012, and then to 12.5 Bitcoins in 2016. This event not only controls the supply of Bitcoin but also affects the mining economy by encouraging miners to be more efficient and to adapt to lower rewards.
Halving reduces the rate at which new BTCs are introduced to the market, effectively reducing the current supply. According to basic economic principles, if demand remains constant or increases while supply decreases, it is likely that the price of Bitcoin will tend to rise.
Bitcoin’s controlled supply, limited to 21 million tokens, is a very important factor in its value proposition. The halving mechanism gradually reduces the rate of new BTC production until the maximum supply is reached. This reduction, along with increased recognition and adoption, can create a perception of limited availability, which can increase demand and affect the price. Historically, halving events have been associated with significant increases in the price of Bitcoin.
For example, during the 2012 halving, the price of Bitcoin rose from about $12 to over $200 within a year. Similarly, after the 2016 halving, Bitcoin experienced a significant recovery and reached $19,700 in December 2017. Most recently, after the halving in May 2020, the price of Bitcoin rose from $8,787 to about $69,000 in November 2021.