On July 9, right in accordance with initial schedule, bitcoin mining reward was halved. The event didn’t come as a surprise – the moment when the mining reward is divided by 2 is commonly known as Bitcoin halving. Some bitcoiners also call it reward halving, Bitcoin mining reward halving, or simply the halving or the Halvening.
As Satoshi Nakamoto was creating a new digital currency, bitcoin, he thought out the whole operational principle. Bitcoin relies on “mining” computers validating blocks of transactions by competing to solve mathematical puzzles every 10 minutes. The first computer to succeed gets a reward of 25 new bitcoins, worth around $13,500. Satoshi Nakamoto decided that the reward must be halved once in four years, in order to keep a lid on inflation.
The upcoming halving time was named as one of the possible reasons for incredible bitcoin boost that we have been observing recently.
“The halving of the supply of Bitcoin is attracting many retail investors,” said Jack C. Liu, chief strategy officer at OKCoin. “More broadly, we continue to see follow-through from the blockchain hype cycle translating to interest in bitcoin the asset.”
When Bitcoin was created in 2009, the initial reward was 50 bitcoins. In November 2012, when the first halving took place, it dropped to 25btc. The second halving decreased the reward to 12.5btc. It is necessary to note that in 2012, bitcoin market capitalization made up $129 million, while now it accounts for $10 billion.
Will halving influence the bitcoin price?
To understand the possible impact of the halving on bitcoin price, it is necessary to clearly see what makes the price. As for bitcoin or any other type of asset, the price is based on demand and supply that are strongly affected by the halving. Experts don’t see eye to eye in the question of how exactly the bitcoin price will change after the halving. One thing is certain though: at the time of halving, the supply reduction will already be priced in the exchange rate, thanks to market anticipation.
At the period of the first halving in 2012, the bitcoin price changed insignificantly. It went up by 1.7% at the very day of halving. However, the following months showed steady growth, which finally resulted in the famous early-2013 rally (from 13$ to 260$ in 4 months).
Thehalving notes: “What is certain for this second Bitcoin halving is that similar wild, speculative, short-term rallies and crashes will occur. The interesting observation will be, on a larger time-scale, to see if the up-trend than Bitcoin price has been experiencing since its inception in 2009 will continue its path.”
On August 25th, 2015, one more digital currency Litecoin underwent its first halving. Two months before, a wild speculative rally took the price from 2$ to more than 8$, before crashing back to 3$.