As Bitcoin specification requires, after each 210,000 mined blocks, the miners' reward is halved. Historically, the reward was 50 BTC for the first 210,000 blocks, then halved to 25 BTC (as it is now). Around June or July this year, it will be for the second time halved, the mining reward becoming 12.5 BTC.
The reason behind this Bitcoin specification requirement is the necessity to control inflation. Bitcoin, at its essence, resembles commodities like gold rather than fiat currencies. If a centralized issuer prints too much money, it will devalue while the supply of gold is limited, and its mining becomes gradually different over time. Due to its limited supply, gold may retain its properties as an international mean of exchange.
Bitcoin designers have hoped that the cryptocurrency will behave more or less the same.
So, what will happen to Bitcoin when the halving occurs?
First, the decline of miners' reward simply means that the Bitcoin network will begin to generate Bitcoins at a much slower rate. If the demand for Bitcoin remains constant through the year, while the supply is reduced, simple economics dictates that the price should rise until a new equilibrium between supply and demand will be reached. But, historically, halving of miners' reward has had no substantial effect on the price of Bitcoin.
Thus, on November 28th, 2012, when the first time the miners’ reward was halved, there was no visible impact on the value of Bitcoin, which was worth around USD $13.40 per Bitcoin. This observation leads us to the second consequence of Bitcoin halving.
Miners will have to increase their technological output, meaning that they will have to improve their hardware. If not, and if the electricity will not become free, they will no more be able to return their investments and will shut down their business. Improving the hardware will make also possible to maintain the current Bitcoin supply.
Third, and most important, is the impact on the Bitcoin price. As the Bitcoin security expert and author of "Mastering Bitcoin: Unlocking Digital Cryptocurrencies" Andreas Antonopoulos explains, the impact of halving on the Bitcoin price depends on a wide range of factors, including the difficulty and transaction volume of Bitcoin.
There are also enthusiasts that predict an important rise of the Bitcoin price. One of them, Daniel Masters, former oil trader at Shell and current co-founder of a multi million Bitcoin hedge fund Global Advisors, expects that Bitcoin could overcome its historical all-time high of $1,100, or even peak at $4,400 by late 2017.