With bitcoin hitting new record highs, the crypto world is bracing for the next "halving," which occurs every four years. We break down how it works and what it means for investors.
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00:00 A major event is going to shake the crypto world. It's called the halving and it happens
00:05 once roughly every four years. This will lower the number of new Bitcoin entering the market
00:12 by half. But how does this work and what does it mean for prices? I'm Leila Maiden and I
00:18 cover all things investing and money. So the way that Bitcoin works is it's a type of cryptocurrency
00:25 that operates on a block chain, which is a decentralized network where transactions can
00:31 happen peer to peer or person to person. Not one government or entity can have control
00:36 over it. So because Bitcoin is a decentralized network, there are thousands of computers,
00:41 which is what we call nodes operating across the globe, and anyone can own and operate
00:46 one. And what they simply do is they solve a series of complex mathematical puzzles and
00:52 verify transactions in the network. Now, the node or series of nodes that find the new
00:57 block are given a reward in the form of Bitcoins. Right now, that reward is 6.25 Bitcoin. However,
01:05 that reward is set to be cut in half in April, down to 3.125 Bitcoins. These rewards are
01:12 cut in half every four years, and this event is called the halving. The reason why they're
01:17 cut in half every four years is, well, because we have a limited supply of Bitcoin. There
01:22 will only ever be 21 million Bitcoin in circulation. Now, I know it sounds like we might be almost
01:28 towards the end since we've already mined more than 19 million Bitcoin. However, the
01:33 last Bitcoin is expected to be mined sometime around the year 2140. Previous halving events
01:40 have impacted prices substantially. In 2017, we saw the price rally by over 1000%. The
01:48 same thing happened in 2021. Now, investors and traders that understand this pattern,
01:54 what they'll do is they'll add Bitcoin to their position during a quiet time in the
01:58 market, or what's called during the bear market, and they'll hold on to this asset until the
02:03 halving event. And once that halving event takes place, many that have been holding their
02:08 Bitcoin for a while tend to wait and try to sell at these high prices. When the price
02:13 of Bitcoin rallies and goes up, it tends to pull the entire crypto market up with it.
02:19 Those who profited off of the price of Bitcoin are now taking their profits and throwing
02:24 it into higher and more riskier bets like altcoins to try and make even more money.
02:30 So there's a lot of things that could impact the price of Bitcoin outside of the halving.
02:35 One of them is macroeconomics, specifically the US economy and interest rates. A lot of
02:40 economists and the markets are speculating that the Federal Reserve could begin to lower
02:45 interest rates by the end or the second half of this year. That could help push the price
02:51 of Bitcoin up. However, it's highly speculative. Earlier this year, in January, the SEC approved
02:59 a series of Bitcoin ETFs. This has made the asset much more accessible because you don't
03:04 have to be a crypto expert or a Bitcoin expert to know where to buy Bitcoin. So now it's
03:09 more accessible. What does this mean? Well, there's more demand for it. Even though we
03:13 have historical data about how Bitcoin's price could move based on certain events, past performance
03:20 never guarantees future results. The cons of this asset is, well, it's highly volatile
03:25 in price. And because of that volatility, it makes it very difficult for it to be a
03:30 medium of exchange, for example, to be used as money. It also makes it a little scary
03:35 to hold it as an investor. How price may move for Bitcoin in the future still remains unknown.
03:41 We can say Bitcoin is in price discovery mode right now.
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