The fourth Bitcoin halving is almost upon us, and this one has the potential for some very interesting surprises. This halving marks the reduction of the Bitcoin supply subsidy from 6.25 BTC every block to 3.125 BTC per block. These supply reductions occur every 210,000 blocks, or roughly every four years, as part of Bitcoin\u2019s gradual, disinflationary approach to its final capped supply in circulation. <\/p>\n
The finite supply of 21 million coins is a, if not the<\/em>, foundational characteristic of Bitcoin. This predictability of supply and inflation rate has been at the heart of what has driven demand and belief in bitcoin as a superior form of money. The regular supply halving is the mechanism by which that finite supply is ultimately enacted. <\/p>\n The halvings over time are the driver behind one of the most fundamental shifts of Bitcoin incentives in the long term: the move from miners being funded by newly issued coins from the coinbase subsidy \u2014 the block reward \u2014 to being funded dominantly by the transaction fee revenue from users moving bitcoin on-chain. <\/p>\n As Satoshi said in Section 6 (Incentives) of the whitepaper: <\/p>\n \u201cThe incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.\u201d<\/em><\/p>\n Historically the halving has correlated with a massive appreciation in the price of bitcoin, offsetting the impact of the miners\u2019 subsidy being cut in half. Miners\u2019 bills are paid in fiat, meaning that if the price of bitcoin appreciates, resulting in a larger income in dollar terms for the lower amount of bitcoin earned per block, the negative impact on mining operation is cushioned. <\/p>\n In light of the last market cycle, with not even a 4x appreciation from the prior all time high, the degree to which price appreciation will cushion miners from the effects of the halving is an assumption that might not consistently hold true. This coming halving, the inflation rate of bitcoin will drop for the first time below 1%. If the next market cycle plays out similarly to the previous one, with much lower upwards movement than seen historically, this halving could have a materially negative impact on existing miners. <\/p>\n This makes the fee revenue miners can collect from transactions more important than ever, and it will continue to become more central to their sustainability from a business perspective as block height increases and successive halvings occur. Either fee revenue has to increase, or the price needs to appreciate at a minimum by 2x each halving in order to make up for the decrease in subsidy revenue. As bullish as most Bitcoiners can be, the notion that a doubling in price is guaranteed to happen every four years, in perpetuity, is a dubious assumption at best. <\/p>\n Love them or hate them, BRC-20 tokens and Inscriptions have shifted the entire dynamic of the mempool, pushing fees from somewhere in the ballpark of 0.1-0.2 BTC per block prior to their existence, to the somewhat volatile average of 1-2 BTC as of late \u2014 regularly spiking far in excess of that. <\/p>\nThe New Factor This Time<\/h2>\n