The bitcoin code dictates that the supply of new tokens entering the market should fall by half roughly every four years. Here’s what cryptocurrency investors should consider.
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The supply of bitcoin entering the market is about to be cut in half. This bitcoin halving isn’t some apocalyptic prediction; it’s just part of the DNA of the cryptocurrency.
“It’s an event that’s baked in to the ethos of bitcoin and happens about every four years,” said Sunayna Tuteja, managing director of digital assets at TD Ameritrade.
To understand why bitcoin has value at all and what the halving could mean for bitcoin tokens and bitcoin futures prices, it can be helpful to think about gold.
Scarce and Costly to Mine
Gold is produced by miners who dig it out of the ground, a process that takes lots of money to fuel equipment, pay workers, and secure permits. Part of the price of gold per ounce includes the reimbursement and profit demanded by miners for their time and expenses. And of course, gold is scarce. It’s a rare metal that’s in demand in the financial markets and from jewelry makers to boot. It all adds to the price.
So how does bitcoin relate? Even though bitcoin is a digital currency created with computers, the code that governs the cryptocurrency ensures that it remains scarce even as there is a real-world cost to creating it. As with gold, the supply of new crypto coins is controlled by “mining”—a computationally intensive process where computers compete against each other to secure the network by solving mathematical equations. It takes powerful computers and a good bit of energy…