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Bitcoin Halving – Why It Matters & What It Means for Your Business

What is Bitcoin Halving?

The bitcoin blockchain relies on miners that compete to validate and add blocks of transactions to the blockchain ledger. To incentivize these miners to compete in processing the transactions, for each block of transactions successfully validated, the miner is entitled to transaction fees, a block reward, or both. Transaction fees earned by bitcoin miners can vary, as these fees are determined by the users of the network. However, block rewards received by miners are consistent over time, except upon the occurrence of a “Bitcoin Halving” event. Upon establishment of the bitcoin blockchain, miners received block rewards of 50 BTC per block mined. Since then, the amount of BTC paid to miners has decreased by half every 210,000 blocks mined, or approximately every four years, in what has come to be known as a Bitcoin Halving.

The Bitcoin Halving highlights the scarcity of BTC in the market. Block rewards are distributed to miners from a finite pool of BTC created at inception of the blockchain, highlighting the lack of the total supply of BTC in existence. Furthermore, the Bitcoin Halving event reduces the rate at which BTC are distributed from the finite pool to the market. The last three halving’s occurred in 2012, 2016, and 2020, with block rewards being reduced to 25 BTC, 12.5 BTC, and 6.25 BTC, respectively. In April 2024, block rewards are anticipated to be reduced to around 3.125 BTC and will continue to reduce at each halving until all BTC have been placed into circulation[i].

What Does This Mean for You and Your Business?

Navigating and determining the accounting and financial reporting implications of the Bitcoin Halving may be complex. In addition to reducing the amount of Bitcoin that is placed in circulation, the halving event has historically brought attention to the crypto space, attracting new investors and contributing to an increase in trading activity. Correspondingly, the halving event has historically resulted in volatility in the price of BTC. Companies may engage in several types of crypto asset transactions for which fair value measurement may be required. For example, businesses may own crypto assets, including BTC, for which fair value measurement would be required under the newly issued Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets. Entities may also safeguard BTC on behalf of others and, as a result, may be required to determine the fair value of safeguarding liabilities and assets recorded in its books in accordance with Staff Accounting Bulletin No. 121. Finally, entities receiving BTC as noncash consideration for goods provided or services performed may be required to estimate the fair value of BTC at contract inception in accordance with ASC 606, Revenue from Contracts with Customers. Companies may face complexities surrounding the determination of the fair value of BTC upon the occurrence of the Bitcoin Halving event if there are corresponding increases in the volatility of the price of BTC. 

In addition, companies that generate revenues from mining activities, including entities operating as part of a mining pool[ii], will be directly affected by the upcoming halving event. With the occurrence of the halving event, companies generating revenue from crypto mining activities may experience a decrease in profitability as the same operating costs incurred to mine crypto will likely yield less revenue due to the decrease in block rewards. Therefore, it will be important for companies to consider the Bitcoin Halving and any anticipated reduction in cashflows when evaluating impairment of its long-lived assets or goodwill and other intangibles, as well as determining going concern conclusions.

How Centri Can Help

It is imperative that you choose financial reporting experts who understand crypto assets and financial reporting requirements. Our dedicated, skilled professionals collaborate with international and domestic token issuers and digital asset exchanges, including decentralized finance platforms, venture capital, miners, media, blockchain and enterprise platforms, and other leaders. This allows us to find solutions for your unique accounting needs. Please contact us to explore how our expertise aligns with the specific needs of your company.

[i] BTC has a maximum supply of 21 million coins.

[ii] A group of miners that combine computational power or resources and work together to perform crypto asset mining, sharing the block reward and transaction fees. (AICPA, Blockchain Universal Glossary)

Mike Andrusko

Partner | Digital Assets Practice Leader | CPA

Michael is a Partner at Centri Business Consulting and the leader of the firm’s Digital Asset Practice. He has more than 10 years of experience in the accounting treatment of various transactions, including complex debt and equity analysis, business combinations and acquisition accounting process integration. View Mike Andrusko's Full Bio

Katherine McShane

Managing Director | CPA

Katie is a Managing Director at Centri Business Consulting. She has more than 10 years of experience specializing in advising clients on the accounting treatment of various transactions including complex debt and equity transactions, business combinations and acquisition accounting, and lease accounting. She joined Centri in February 2018 and has assisted clients across several industries, including digital assets, financial services, healthcare, private equity, cannabis, and telecommunications. View Katherine McShane's Full Bio

Yoland Sinclair

Director | CPA

Yoland is a Director at Centri Business Consulting. She has over 10 years of experience in public accounting and accounting advisory experience. View Yoland Sinclair's Full Bio