Bitcoin halving

The next bitcoin (BTC) halving is likely to occur in May 2020 and could have a dramatic impact on the cryptocurrency’s price. Discover everything you need to know about the next bitcoin halving – including what it is, why it’s happening and how you can trade it.

What is a bitcoin halving?

A bitcoin halving (sometimes ‘halvening’) is an event where the reward for mining new blocks is halved, meaning miners receive 50% fewer bitcoins for verifying transactions. Bitcoin halvings are scheduled to occur once every 210,000 blocks – roughly every four years – until the maximum supply of 21 million bitcoins has been generated by the network.

Bitcoin halvings are important events for traders because they reduce the number of new bitcoins being generated by the network. This limits the supply of new coins, so prices could rise if demand remains strong. While this has happened in the months before and after previous halvings – causing bitcoin’s price to appreciate rapidly – the circumstances surrounding each halving are different and demand for bitcoin can fluctuate wildly.

When is the next bitcoin halving?

The next bitcoin halving is expected to occur in the week commencing 18 May 2020, when the number of blocks hits 630,000. It will see the block reward fall from 12.5 to 6.25 bitcoins. The exact date of the halving is not yet known as the time taken to generate new blocks varies, with the network averaging one block every ten minutes.

Bitcoin halvings: key events

Event Date Block number Block reward Total new bitcoins between events
Bitcoin launches 3 January 2009 0 (genesis block) 50 new BTC 10,500,000 BTC
First halving 28 November 2012 210,000 25 new BTC 5,250,000 BTC
Second halving 9 July 2016 420,000 12.5 new BTC 2,625,000 BTC
Third halving Expected week commencing 18 May 2020 630,000 6.25 new BTC 1,312,500 BTC
Fourth halving Expected 2024 740,000 3.125 new BTC 656,250 BTC
Fifth halving Expected 2028 850,000 1.5625 new BTC 328,125 BTC

This list is not exhaustive. Bitcoin halvings will occur every 210,000 blocks until around 2140, when all 21 million coins will have been mined.

How to trade 2020’s bitcoin halving

There are two ways to trade bitcoin’s halving in 2020. You can speculate on the price of the cryptocurrency using derivatives such as spread bets or CFDs, or buy the coins outright via an exchange. Learn more about cryptocurrency trading and how it works.

One of the main benefits of trading cryptocurrencies with derivatives such as CFDs and spread bets is that you don’t take ownership of the underlying coins. This enables you to:

  • Trade without an exchange account or wallet: with IG, you could be set up and ready to trade in minutes
  • Go long or short: you can take a position on bitcoin whether you expect it to rise or fall in value
  • Take advantage of leverage: you can open a position by putting down a deposit – known as margin – to gain access to a much larger market exposure
  • Pay less tax: spread-betting profits are tax-free, while losses from CFD trading can be offset against profits for tax purposes1

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What happened the last time bitcoin halved?

Bitcoin rewards last fell on 9 July 2016 at the point of the second halving – an event which saw the block reward fall from 25 new bitcoin per block to 12.5 bitcoin. Bitcoin’s price surged from $576 on 9 June 2016 (a month before the halving) to $650 at the time of the event itself. Despite significant volatility, prices continued to rise over the course of the next year to reach $2526 on 9 July 2017.

A similar pattern emerged surrounding the first halving on 28 November 2012 when the bitcoin block reward dropped from 50 to 25 new bitcoins. Prices increased from $11 a month before the halving to $12 on the day of the event itself, continuing to rise over the course of the next year to reach $1038 on 28 November 2013.

Learn how to trade bitcoin with IG.

Bitcoin halving price chart

How might the bitcoin halving impact BTC’s price?

It is not yet clear how the next halving will impact bitcoin’s price. Many commentators believe that the price will follow a similar pattern to the two previous halvings, rising ahead of time due to increased news coverage, and after the event itself as the supply of new coins is constrained.

However, any price rise will depend on how demand for bitcoins shapes up over the course of the halving. Demand is by no means certain to increase – or even remain static – as the market has matured significantly since the last halving in 2016, and there are now many more cryptocurrencies competing for users.

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How does a bitcoin halving work?

A bitcoin halving works because of the network’s underlying blockchain software, which dictates the rate at which new bitcoins are created. The software requires computers in the network to compete to verify transactions – through a process known as ‘mining’ – and rewards them with a number of new bitcoins when they can prove that the transactions they have selected are valid. Transactions are verified in groups called ‘blocks’ and the network is coded to halve the reward received by miners every 210,000 blocks.

Learn more about blockchain technology.

What happens to miners when the bitcoin reward is halved?

When the block reward is halved, some users may calculate that their mining activity will no longer be profitable due to costs such as electricity and hardware. Some users may stop mining altogether if the price of bitcoin doesn’t rise to compensate, reducing the amount of processing power in the network. Whatever happens, the speed at which blocks are mined shouldn’t be affected as the software automatically adjusts the difficulty of verifying transactions to maintain a steady rate.

What happens when all 21 million bitcoins have been mined?

When the maximum supply of 21 million bitcoins has been mined, users will no longer receive new bitcoins for verifying blocks. However, they will continue to receive transaction fees – contributed by those making payments – as an incentive to verify transactions. It is estimated that the last new bitcoin will be mined in 2140. At this point, the cryptocurrency will become deflationary as coins can be ‘lost’ through user error – for example, by sending coins to an invalid address.

Why does bitcoin halve?

Bitcoin halves due to the design of its software, which was created by a mysterious person or group using the assumed pseudonym ‘Satoshi Nakamoto’. While Satoshi hasn’t explicitly explained the reasons behind halvings, many have speculated that the system was designed to distribute coins more quickly at the beginning to incentivise people to join the network and mine new blocks. Under this theory, block rewards were programmed to halve at regular intervals because the value of each coin rewarded was deemed likely to increase as the network expanded.

One criticism of bitcoin’s design – including halvings and the finite supply of 21 million coins – is that it encourages users to save rather than spend in the hopes that coins will increase in value over time. This may have fuelled boom and bust cycles in the past, with users hoarding coins only to cash out at key levels. Some have also compared bitcoin to a pyramid (Ponzi) scheme for similar reasons, arguing that the system’s design has disproportionately rewarded users who got in early.

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FAQs

How can I trade the bitcoin halving?

The easiest way to trade bitcoin over the course of the halving is with derivatives such as contracts for difference (CFDs) or spread bets, which enable you to speculate on bitcoin price movements without taking ownership of the underlying coins. Both also enable you to manage your risk with stops and are subject to beneficial tax rules in the UK (note: tax rules are subject to change and depend on individual circumstances). The alternative is buying bitcoins outright through an exchange. If you choose this option, you will need to set up an exchange account and take responsibility for securing your cryptocurrency tokens in a wallet. Any profits would also be subject to tax in the normal way.

Find out more about trading bitcoin with CFDs or spread bets.

Can I make money from the BTC halving?

Yes, it will be possible to make money from the BTC halving by speculating on bitcoin’s price movements in the weeks and months surrounding the event. Contracts for difference and spread bets are popular ways to speculate on bitcoin price movements because they enable you to go long or short.

However, it’s important to remember that all forms of trading carry risk. So, while there will be opportunities for profit, you should never risk more than you can afford to lose. With IG, you’ll have access to guaranteed stops, which always close your trade at the precise level you specify – ensuring you know the exact amount you're risking on each trade. A small premium is payable if a guaranteed stop is triggered.

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What will the BTC price be after the halving?

Many have speculated that bitcoin’s price will rise in the weeks before and after the event. This is in part because the halving is expected to draw increased attention to bitcoin, but also because it will reduce the supply of new coins entering circulation. However, any price rise will depend on how demand for bitcoin shapes up over the course of the halving. This is by no means guaranteed to increase – or even remain steady – as it has fluctuated wildly in the past.

When you trade bitcoin with IG, you’ll be using CFDs or spread bets to speculate on its price. That means you can place a trade whether you expect it to rise or fall in value. Learn more.

How do I reduce the risks of trading bitcoin?

You can reduce some of the risks associated with trading bitcoin by speculating on the cryptocurrency’s price with CFDs or spread bets. Both are derivatives, which enable you to take advantage of bitcoin’s price movements without taking ownership of the underlying coins – meaning you do not take on the risks associated with an exchange account or wallet.

With IG, you’ll also be able to use guaranteed stops, which always close your trade at the exact level you specify. Guaranteed stops will cap your losses in the event of adverse price movements, even if there are liquidity problems in the underlying market. A small premium is payable if a guaranteed stop is triggered.

Read more about trading bitcoin with IG.

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

2 Based on revenue excluding FX (published half-yearly financial statements, June 2019).

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.