Since the creation of Bitcoin, several concepts have been attached to the financial sector, among them is “halving”, which refers to an event that plays a fundamental role in the supply and demand dynamics of this cryptocurrency. However, the effects of Bitcoin halving can also indirectly influence the banking or financial sector. Below, we will learn how Bitcoin halving can affect the banking or financial sector.
What is Bitcoin halving?
Bitcoin halving is an event that occurs when the reward for mining new blocks of Bitcoin transactions is halved. Approximately every four years the rewards for Bitcoin transactions are halved, thus affecting the available supply of this cryptocurrency because the rate of creation of new Bitcoin slows down, thus increasing its value as it generates specific shortages.
When could the next Bitcoin halving happen?
Since the last event occurred on May 11, 2020, the next Bitcoin halving is expected between March and June 2024.
How can it affect the banking or financial sector?
While Bitcoin halving is essential because it helps Bitcoin’s value maintain a good appreciation over time (through preventing inflation and controlling scarcity), the truth is that this event not only affects the cryptocurrency market but also indirectly impacts the banking and financial sectors. It should be noted that this impact will depend on several factors:
- If Bitcoin becomes widely adopted in the market.
- Consumer behavior.
- Market behavior.
- Technological evolution.
- Regulatory environment.
Encourages the improvement of financial services
One of the effects that the halving of Bitcoin may have on the banking and financial sector is to help or encourage the financial services industry to seek better solutions through the creation of new tools and services, as both traditional banking and other financial institutions will seek more opportunities and try to adopt blockchain technology and Bitcoin to offer better products and more efficient and secure processes.
Increased confidence in Bitcoin and other cryptocurrencies
Another significant effect that the halving of Bitcoin may have on the banking and financial sector is that it will increase confidence in Bitcoin and other cryptocurrencies, which will be reflected in demand and especially in adoption; this may occur since both companies and individuals may opt for the use of cryptocurrencies to have a payment alternative and diversity of currencies in wallets, have greater access to markets and the globalized digital economy, in addition to protecting themselves against the well-known inflation and devaluation of fiat currencies, which originates from current monetary policies.
Alternative to traditional monetary policy
The most important effect that maybe Bitcoin halving may have on the banking and financial sector is that it offers an alternative to traditional monetary policy, allowing businesses and individuals to gain more independence from the inflationary models adopted by central banks and their respective FIAT currencies.
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