Bitcoin halving events: Why they matter for scarcity and price

How do you create digital scarcity? Bitcoin has solved this puzzle by programming automatic supply cuts into its code. Every four years, an event known as the Bitcoin halving reduces the creation of new coins by exactly 50%, and these events have historically preceded significant price increases.

This programmed scarcity sets Bitcoin apart from traditional fiat currencies, because central banks can increase fiat money supplies at will. Bitcoin's fixed schedule creates predictable deflation that has captured the attention of investors seeking alternatives to inflationary monetary systems.

But what exactly happens during a halving event, and how does this mechanism work? The answer lies in Bitcoin's mining system and the rewards that secure the network. These automated processes are built into the blockchain architecture, as detailed in our article Bitcoin blockchain explained, creating a monetary policy unlike anything seen before.

Key Takeaways:

• Bitcoin halving events occur approximately every four years, automatically cutting mining rewards in half to create programmed scarcity, unlike traditional currencies.

• All four completed halving cycles (2012, 2016, 2020 and 2024) have preceded significant price rallies, although the timing and magnitude have varied based on market conditions.

• Halvings drive the evolution of the mining industry through consolidation, efficiency improvements and a migration toward cheaper energy sources.

• Bitcoin's stock-to-flow ratio of around 120 years makes it mathematically scarcer than gold (59 years), with scarcity increasing after each halving.