Could Cryptocurrencies Divide Along the Lines of Stocks, Revealing an Unexpected Response?
With the price of Bitcoin (BTC -0.14%) surpassing the $100,000 mark, some investors are left questioning whether this digital currency could undergo a split, similar to how popular tech stocks sometimes do. However, it's essential to understand that Bitcoin and traditional stocks split in distinct ways.
Do stocks and crypto really split in the same way? Nope. Most stock splits occur when a company's stock price escalates to levels that make it unaffordable for the average investor. By executing a stock split, the number of shares multiplies, while the price per share decreases. For example, assuming you own 500 shares of a stock valued at $2 each before a 2-for-1 split, you would possess 1000 shares per share worth $1 after the split.
When it comes to crypto, like Bitcoin, the situation is different. A single Bitcoin can be divided into a whopping 100,000,000 parts, known as "satoshis." This means that even if Bitcoin's price touches $100,000, no one is required to shell out a lump sum of $100,000 to acquire a full Bitcoin. Trading platforms even permit the purchase of as little as $1 worth of Bitcoin at a time. So, if you invest $1,000 when Bitcoin sells for $100,000, you'll own a mere 0.01 Bitcoin.
Could Bitcoin still split? In theory, yes, but the process would be an uphill battle. To accomplish a Bitcoin split, the underlying code must be adjusted. Such a change would require consensus from the entire Bitcoin community. And considering Bitcoin is a decentralized digital asset with no traditional top-tier leadership or governing body, reaching consensus could be close to impossible.
Now, if we momentarily digress to the realm of hard forks, we discover that this is a more probable outcome for crypto than a classic "split." Hard forks occur when developers, usually within a cryptocurrency's community, disagree on how the technology should advance. Proposals are set forth, and if they garner enough momentum, they can spark a hard fork, fragmenting the blockchain, and giving birth to a new token. Technically speaking, hard forks aren't actual splits but close approximations.
Since Bitcoin's inception in 2009, there have been approximately 100 hard forks. Mostly, these events have led to minor improvements in technical aspects, like altering block size capacities. Some popular hard fork offshoots, such as Bitcoin Cash (BCH), have gained recognition, although still trail behind their obsolete counterparts in terms of market cap.
Another phenomenon enveloping the crypto sphere is "halvings." During these occurrences, Bitcoin miners reward sizes are halved every 4 years. The ongoing halvings naturally slow Bitcoin creation while keeping the fixed lifetime supply at 21 million coins.
In 2024, massive confusion erupted in the crypto world with the mention of Bitcoin halving. Some misinterpreted it as a Bitcoin split, but tricky wording caused the uproar. In essence, a halving is an adjustment to Bitcoin miners' rewards, not a split in Bitcoin itself.
Lastly, BlackRock (BLK 0.27%) fueled speculation when they proposed that the high demand for Bitcoin might necessitate raising its maximum lifetime supply. Nevertheless, reactions within the crypto community were fiercely negative, stressing the significance of Bitcoin's 21 million coin cap to its identity as an unaffected digital currency. As a result, it's highly unlikely that Bitcoin will ever split.
Investing in Bitcoin, despite its high price, allows individuals to buy fractions of a coin, making it more accessible to many. Despite the technical possibility, achieving a Bitcoin split would be an uphill battle due to the decentralized nature of the digital asset.