Bitcoin Fourth Halving
Mining Difficulty Surges Sharply
Profit-Taking Potential in Mining Industry
Short-Term Correction Inevitable
Long-Term Positive Outlook Expected
The fourth Bitcoin halving is just one day away. The halving, which increases mining difficulty, is considered a positive factor that drives long-term price increases. However, there are forecasts that a short-term correction may occur as mining companies sell Bitcoin immediately after the halving to invest in core infrastructure.
Bitcoin Halving Expected to Take Effect Early Morning on the 20th
On March 11, Bitcoin prices took a breather just before reaching the '100 million won mark.' Photo by Jo Yongjun jun21@
According to JP Morgan on the 19th, this Bitcoin halving, which occurs after May 2020, is expected to take effect early morning on the 20th Korean time. Bitcoin is designed to reduce the mining amount by half every four years to prevent inflation caused by a surge in mining. In this halving, the total daily mining amount is likely to decrease from 900 to 450, and the reward per block is expected to drop from 6.25 to 3.125.
Since Bitcoin halving reduces supply, it can act as a factor for price increases. Especially, given that Bitcoin prices rose after the previous three halvings, many investors are betting on a rise this time as well.
Halving: Short-term Negative, Long-term Positive
The domestic and international cryptocurrency industries evaluate the Bitcoin halving as "negative in the short term but positive in the long term." Kim Minseung, head of the Kobit Research Center, said, "When halving occurs, miners have to sell 'more' Bitcoin to maintain operations, so prices fall a few months before the halving and then rise in the long term." He explained that immediately after the halving, mining difficulty rises sharply, so mining companies may sell to realize profits in order to invest more in high-speed computers and electricity.
Lee Hyesung, CEO of INF Crypto Lab, said, "Until the previous halvings, miners had a large market share, so the price tended to rise after the halving," but added, "Now, the influence of spot Exchange-Traded Funds (ETFs) dominates, so it is uncertain whether the past pattern will repeat."
The reason Bitcoin halving is positive in the long term is that it reduces price volatility. Thomas Perfumo, Head of Strategy at Kraken, a U.S. cryptocurrency exchange, said, "Bitcoin's appeal as a sound currency is strengthened, highlighting its function as a store of value."
Additionally, as major countries continue efforts to bring cryptocurrencies into the regulatory framework and expectations for interest rate cuts persist, there are views that Bitcoin prices will continue to show strength. A representative from a domestic coin exchange said, "Recently, Bitcoin prices have experienced some decline due to high interest rates and global geopolitical factors, but prices still exceed the previous 'bull market' peak in 2021 (around 82 million KRW)," adding, "From a long-term perspective, prices are expected to trend upward."
Mining Industry Faces Difficulties
A sorting out of the mining industry is inevitable. According to Deutsche Bank, during the three previous Bitcoin halvings, the hash rate (cryptocurrency mining capacity) of companies plummeted by 25% during the first halving, 11% during the second, and 25% during the third. It is expected that the mining landscape, which began to become crowded due to the Bitcoin surge, will be reorganized around companies with abundant cash flow. Due to pessimistic outlooks on mining companies, the 'Valkyrie Bitcoin Mining ETF' (ticker WGMI), composed of Bitcoin mining companies, has plunged 31% from its peak in February.
With the U.S. accounting for about 40% of Bitcoin mining, Bloomberg reported that some expect mining companies to relocate mining equipment to countries with lower energy costs such as Latin America and Africa due to this halving. Larisa Yarovaya, a finance professor at the University of Southampton, said, "Believing that demand for Bitcoin will increase and prices will rise, mining companies will engage in a continuous game of chicken."
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