7 myths about the bitcoin halving

The bitcoin (BTC) halving is a pivotal event for the digital currency that halves its issuance every approximately four years. However, it is surrounded by a number of myths and misconceptions that can distort understanding of its impact and meaning.

A few days before the next halving , which will occur around April 20, 2024, it is more than appropriate to banish the misinformation that revolves around it . Therefore, below are 7 of the most common myths about this event to uncover the truth behind them.

The halving immediately impacts the price of bitcoin

It is common to believe that the halving of bitcoin automatically causes an increase in its price. But this is not exactly the case. Like any financial asset, its rise depends on having greater demand than supply, something that only this event contributes to.

What the halving does is reduce by half the amount of bitcoins that are issued per mined block. This can lower the amount of BTC that is released to the market by miners. This decrease in supply allows the price to rise more easily, if demand is sufficient, in the long term. It does not happen instantly since miners can dump coins they have had before into the market.
 
Therefore, the halving is a key factor for the rise of bitcoin, but it does not fully determine it, since it depends on the supply and demand perceived at all times. Historically, this event has functioned as a catalyst, amid other macroeconomic conditions, driving the price to new highs a few months

The bitcoin halving guarantees a bullish cycle for all cryptocurrencies

There is a misconception that the bitcoin halving triggers a bull cycle for all cryptocurrencies. But, the truth is that there is no direct relationship between this bitcoin event and the prices of such assets.

The reason for this myth is that the approach and achievement of the halving has always driven a bullish cycle for bitcoin, generating an impact on cryptocurrencies. This is because, with its price rise, investors' appetite to take greater risk grows.
As a consequence of this phenomenon, demand for cryptocurrencies in general increases, which puts upward pressure on their prices. In this scenario, those that become most popular and have low capitalization, experience returns that exceed those of bitcoin. That is why this process is expected by various traders.

Something key to keep in mind here is that many cryptocurrencies do not have solid fundamentals supporting their rise. Therefore, after strong increases, large profit-taking is generated that causes its price to precipitate, leaving numerous traders in losses. It is for this reason that it is essential to anticipate the risks involved in operating with them.

It is also possible that many cryptocurrencies, despite the bitcoin halving and the general bull market, will never see price rebounds.

Bitcoin halving is activated externally

Some may believe that the bitcoin halving is an event that is triggered by external means or human decisions. Far from it, this event occurs automatically and predictably every 210,000 mined blocks, which occurs every approximately four years.

Currency blocks are units of data that contain a set of confirmed transactions. Miners compete to add these to the chain by solving mathematical problems, earning bitcoin as a reward for their work.
This is determined in the protocol that gave rise to bitcoin 15 years ago, precisely in 2009. The creator behind all this is known under the pseudonym Satoshi Nakamoto.

Bitcoin halving equals deflation

Although the halving decreases the issuance of new BTC, this process is not equivalent to deflation. This term is reserved for monetary systems where the emission is negative (that is, there is destruction of currencies), which is not the case for said digital currency.

The number of bitcoins in circulation will continue to increase until the maximum limit of coins that can be mined is reached: 21 million BTC. What the halving produces is that, until reaching this milestone scheduled for the year 2140, the emission rate is reduced by half every around four years, as seen below.
It is for this reason that some prefer to call bitcoin “anti-inflationary”, since it will no longer have an inflationary monetary system when no more coins are issued. This is one of its bullish catalysts that makes it different from fiat money, which is pressured to devaluation due to its unlimited issuance at the decision of the government in power.

Halving makes Bitcoin mining unprofitable

Because halving halves the number of bitcoins issued in each block, some think it makes mining no longer profitable. However, if the price of the coin remains higher than what it costs to mine it, then the activity continues to be fruitful .
In the end, to be profitable, it all depends on supply and demand in the market, as well as whether miners can adjust their operations to adapt to the new environment of reduced rewards.
The challenge that halving entails for miners has been correlated with technological advances that allow them to carry out their activity with less costs, through equipment with greater energy efficiency. Therefore, efforts to find new innovations that achieve this will hopefully continue as long as interest in bitcoin continues.
Additionally, something to also keep in mind is that if the number of bitcoin miners decreases, the remaining miners could mine more coins on average. Therefore, although the halving may lead some to leave the activity, others could be favored, as long as they can take profits from their achieved holdings.

Bitcoin halving increases transaction fees

There is a belief that the bitcoin halving increases transaction fees on the network. However, although this event can influence, it does not directly and necessarily lead to it.
As miner rewards for such an event decline, miners may select transactions with higher fees to include in the blocks they mine. Although this will depend on whether there is demand willing to pay more expensive commissions; otherwise it will not be so.
Transaction fees are therefore determined by supply and demand, as well as other factors such as network congestion, which can lead to increases so that transfers are processed faster.

Halving is the only element that gives value to bitcoin

Although the bitcoin halving is important for there to be a shortage of the currency, it is not the only element that gives it value. There are multiple factors that make this asset considered valuable digital money for people.
Some of these aspects are that anyone can access to have bitcoin without any type of restriction and can transfer it freely. Furthermore, if self-custody wallets are used to do this, it is impossible to confiscate the holdings and allows them to be kept private.
Likewise, the value of bitcoin lies in the fact that its issuance is defined and is done in a decentralized manner by those who want to be part of this activity. All of this occurs while maintaining network security.
It is all these attributes that motivate the demand for bitcoin, promoting its upward trend. This has led some to classify the currency as a store of value.
Understanding these common misunderstandings is important to interpret the impact of the halving on bitcoin and cryptocurrencies, especially at this time when the market's eyes are on this important upcoming event.