After the approval of cryptocurrency exchange-traded funds (ETFs) in the United States, another fundamental event for the crypto industry is on the horizon: the expected bitcoin halving in mid-April 2024.
The approval of so-called bitcoin spot ETFs by the US Securities and Exchange Commission (SEC) in early January 2024 led to significant cash inflows into the crypto market, specifically targeting the market for bitcoin spot ETFs. Between March 4 and March 13, 2024, approximately US$3.8 billion was invested into the newly approved bitcoin ETFs, resulting in bitcoin reaching a new record high of around US$ 73,750.
Now, the industry eagerly awaits the so-called bitcoin halving. This is a halving, i.e. a reduction, in the reward that bitcoin miners receive for creating a new block. The halving is an inherent feature programmed into the underlying blockchain of bitcoins, intentionally designed to create shortage. In simple terms, each block in the blockchain contains a summary of all bitcoin transactions. Miners continuously verify the accuracy and completeness of these blocks. Once all transactions within a block are verified, the miner receives a specific number of bitcoins as a block reward. Currently, the block reward is 6.25 bitcoins per validated block. After the halving, this reward will decrease to 3.125 bitcoins per validated block.
Bitcoins are programmed to have a maximum limit of approximately 21 million coins. Every 210,000 blocks – i.e., after verification and creation of 210,000 blocks – a new halving event is automatically and immutably triggered in the source code. On average, a new block is created (mined) approximately every 10 minutes, resulting in a halving event roughly every four years.
The three previous bitcoin halvings, in 2012, 2016 and 2020, have consistently been accompanied by significant price increases for bitcoin. It is widely expected that the upcoming halving will follow a similar pattern. History has shown that the cryptocurrency market in general, and the bitcoin market in particular, is exceptionally volatile – similar to the rapid price movements following SEC approval – often driven by irrational herd behavior. Ultimately, all signs point to the upcoming halving being no exception.
From a regulatory perspective, there is currently no legal framework at either the European or national level to prevent such substantial price fluctuations. In the EU (including Germany), the crypto market is regulated by the European MiCAR (Markets in Crypto Assets Regulation – Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023) and, selectively for crypto assets such as security tokens, by MiFID II. MiCAR, which also applies to currency tokens such as bitcoin, will come into full effect on December 31, 2024. For issuers and providers of crypto assets, MiCAR imposes disclosure and business organization requirements, as well as specific licensing and ongoing government supervision. Similarly, crypto service providers offering services such as operating trading platforms, managing crypto portfolios, providing advice on crypto assets and placing crypto assets are also subject to licensing requirements under MiCAR.
The upcoming halving is not affected by this newly established legal framework, and the price fluctuations in the crypto market will not be prevented by the stricter and – at least EU-wide – uniform regulation of crypto assets.
