Why is the Bitcoin halving important for the future of DeFi?

Author: Savannah Fortis, CoinTelegraph; Compiler: Deng Tong, Golden Finance

In the ever-evolving landscape of cryptocurrency and blockchain technology, few events are as significant as the Bitcoin halving. Significance.

This landmark event occurs approximately every four years, or every 210,000 blocks, and serves as a basic mechanism to halve the rewards paid to Bitcoin miners.

The first halving event occurred in November 2012, when the block reward dropped from 50 BTC to 25 BTC per block. The halving is expected to occur at some point in mid-April 2024, during which the reward per block will drop to 3.125 BTC.

In addition to its direct impact on Bitcoin supply dynamics, the halving event also affects the entire cryptocurrency ecosystem, including the decentralized finance (DeFi) sector.

Cointelegraph spoke to several experts in the DeFi space, from market analysts and Bitcoin-related business executives to advocates of Bitcoin adoption, to find out what kind of impact they think it will have on the community.

Boost the market

The core concept of DeFi is to create an open, permissionless system by leveraging blockchain technology and a trustless financial system, thereby democratizing financial services. As a groundbreaking cryptocurrency, Bitcoin plays a key role in shaping the ethos and infrastructure of DeFi.

As such, any events that impact Bitcoin supply and market dynamics will inevitably impact the trajectory of DeFi.

Grzegorz Drozdz, market analyst at Invest.Conotoxia.com, pointed out that the halving could not only increase the value of Bitcoin, but also strengthen the entire cryptocurrency market. He said:

“Since Bitcoin is an important part of the DeFi ecosystem, its increase in value can attract more investment into DeFi platforms and projects, thereby promoting its growth and adoption.”

He added that currently, however, Bitcoin’s position relative to the entire cryptocurrency market is strengthening and has reached 54% of total market capitalization, “proof that capital is consolidating on major cryptocurrencies first. Only It can be moved to other projects later."

Price Fluctuation and Decentralized Testing

Historically See, as Bitcoin’s scarcity increases, the price of the cryptocurrency subsequently appreciates. A rise in BTC prices may have the effect of lifting all boats, which may lead to increased investment in DeFi protocols and applications.

Reduced Bitcoin issuance rates may also affect its availability on decentralized exchanges (DEXs) and lending platforms, where Bitcoin often serves as collateral for various financial activities .

Bitcoin’s scarcity may also mean that its utility as collateral may increase, potentially affecting lending rates, liquidity pools, and liquidity mining strategies in the DeFi ecosystem.

In addition, the Bitcoin halving is a litmus test for the resilience and adaptability of decentralized finance protocols.

As the supply and demand dynamics of the cryptocurrency market fluctuate, DeFi platforms must innovate and iterate to adapt to changing market conditions.

Bitcoin journalist and adoption advocate Joe Hall said, “A project is either decentralized or it’s not.” He said:

“Bitcoin obviously is decentralized, while most, if not all, projects claiming to incorporate DeFi are far from it. I hope Bitcoin's stance on antifragility and predictability will show what 'DeFi' projects really are. ”

Attracting outside attention

Every time it is halved, Bitcoin will become the focus of the mainstream, even if it is just In a short while, all major media outlets will report on this incident.

This moment could spark interest not only from new investors, but also from regulators and developers, which could lead to a push for tighter regulation of the DeFi space, but could also Inspire innovation as developers work to create DeFi solutions that are in line with evolving trends.

Hall said the predictability of the event could be useful to the crypto industry, which is known to often confuse regulators.

“Uncertainty has been a prominent theme in finance and politics in the 21st century, and Bitcoin’s predictability enhances its appeal.”

“The halving is one of the clearest examples of Bitcoin’s predictability and decentralization – we all know it. will happen, and no one entity or group is more capable than anyone else of changing it.”

The Bitcoin halving is not a panacea for the success of the cryptocurrency or the DeFi ecosystem as a whole. However, it is indeed a major event that could play a role in shaping the future of this rapidly evolving space.