A Bitcoin Halving event occurs when the reward for mining Bitcoin transactions is cut in half. At present, miners are awarded 6.25 new Bitcoin for each mined block. This amount will therefore reduce to 3.125 Bitcoin post the halving date.

This date is set to happen on 19^th April 2024.

Halving will occur every time 210,000 new bitcoins have been mined (roughly every four years) and will continue to occur until the maximum supply of 21 million bitcoin has been generated. It is expected that the final halving will happen in the year 2140.

The theory behind this event is that by issuing fewer Bitcoins over time, it is more likely that the value of the asset will rise in the future. Akin to this, a key concept behind halving the reward is to tackle inflation concerns, by maintaining scarcity of the asset class.

With limits to the supply of new coins, prices could rise if the demand remains strong. In order to keep up with demand, miners will have to continue to improve the efficiency of their processes to generate more bitcoin.

In the past, halving events have resulted in bitcoin price volatility and a “trading frenzy” just before and just after the halving. A general trend is that the tightening of supply causes the price to surge, however it is not anticipated that the price will rise as much as it has done in previous halving’s due to the maturing of the market.

It is important to note, it is difficult to predict exactly what will happen as it has been different on each occasion, with huge changes in the market happening in between each halving event.

If you are an investor, you need to be aware of the changes in the value of your bitcoin.

Your holding will be classed as a capital asset and any gains or losses realised on disposal will be subject to Capital Gains Tax.

The complexity of this calculation can vary depending on what you have done with your holding; have you held on to it, exchanged it, or bought and sold it several times? It is important to understand the value of your holding to anticipate any future tax liabilities or take advantage of losses.

If you are a trader or miner, remember that transaction fees are subject to income tax too, so even if the value of bitcoin goes down and transaction fees rise, you will need to report this income on your self-assessment tax return.

On the winding up of any mining businesses, we can advise you in respect of any potential tax reliefs available at this stage.

The general understanding of Cryptoassets and the reporting requirements attached to these is notoriously complex, so please do get in touch with our Private Client Crypto experts to discuss any queries you may have.