How Bitcoin Halving Will Affect BTC Price?

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by Adedamola Bada · 7 min read
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How Bitcoin Halving Will Affect BTC Price?

As Bitcoin continues to dominate the crypto market, experts are already wondering about the next big thing in store for the digital gold. No need to look too far into the future – Bitcoin halving, the next big thing for the cryptocurrency, is only a few months away.

Next Bitcoin halving to happen sometime in the second week of May 2020 with a new Bitcoin price expected to follow the halving event. Apart from likely BTC price change, there will certainly be a massive shakeup in the mining industry that will leave only the strong in business.

The attitude of people towards Bitcoin over a decade ago is very much different from what is obtainable now. Due to the presentation of the digital currency, which many mistook to be a scam due to its “too good to be true” appearance, most people ignored it. However, Bitcoin later came to be a name to reckon with. It took the market with such force, when it peaked at $20,000 in 2017, that its effect is still being felt with such intensity to date.

The following year, 2018, was a disaster for the virtual currency, falling to around $3,000. This bearish trend didn’t go away as quickly as a lot of people hoped, but gradually the token is making steady recovery with its price moving between $8,000 – $10,000 levels as of Q1 2020.

Bitcoin Halving Explained

This happens once every four years and at the end of it, Bitcoin experiences a cut by half in its rate of generation. As sad as it sounds, Bitcoin wasn’t designed to have an indefinite supply. The moment the last Bitcoin is created, bringing its sum total to 21 million, no more coin will be generated by the network.

As of now, we have accumulated about 85% of the total Bitcoin cap at 18 million BTC. Though this is a very substantial amount, the end is not near yet. This number will continue to increase and along with it is another event that cannot be stopped – Bitcoin halving. This occurs after every 210,000 blocks, which makes the production of new coins even more difficult.

What this means is that the protocol instituted to carry out Bitcoin halving after certain requirements are satisfied cuts the block reward in half. The consequence of this is mainly felt by miners who will begin to receive BTC with a 50% cut whenever a Bitcoin halving happens.

How Bitcoin Halving Affects BTC Price

Using past events as a yardstick, Bitcoin halving usually brings about a surge in the price, but in all, the supply/demand ratio plays the most vital role in determining what becomes of its price. Taking the supply/demand ratio into consideration, after a successful Bitcoin halving, the scarcity of the asset will increase. Now, for there to be an increase in its price, there must be a high demand for the asset.

The industry has witnessed an increase in activity in all things relating to cryptocurrency for the last four years. Bitcoin has seen more media time and has become an important part of several sectors. As its halving approaches, it is predicted that a lot of people will be taking chances with the asset with hopes of cashing out big since previous patterns have shown such to be a possibility.

So, if what happened to the price of Bitcoin, considering past halvings, manages to occur again, then we may yet witness a mad rush by traders to purchase the asset in order to be a part of its rising price. These actions will trigger the increase in demand for the crypto asset, leading to the increment of its price.

A Brief Trip Down Memory Lane

Bitcoin halving has an immense effect on miners that makes some to leave the mining scene, while some continue the mining business. The remaining miners still find a way to sell Bitcoins at a profitable rate which affects the asset’s asking price in a positive direction.

Let us take a look at previous halvings and how they affected the price of Bitcoin.

Halving Number 1

When the first halving took place, one BTC was valued at $11. It happened on the 28th of November, 2012 and within the next 12 months, the price of Bitcoin rose to $1,100, something that has never happened before with Bitcoin.

The price of Bitcoin later suffered and crashed to $220. For the next few years, its price stayed below $1,000. Even at that price, it still was preferable to its former worth prior to the halving.

Halving Number 2

The second time Bitcoin halving was recorded was in July 2016. Its price was going back and forth between the $600 and $700 marks and suddenly took off in 2017 during what was termed the great bull run to settle at $20,000.

This massive surge was 33 times its value before the second halving occurred and more than 1,818 times its value prior to the original halving.

Halving Number 3

The next halving has been slated to hold in a matter of months and there are lots of expectations surrounding the price of Bitcoin. Many are hoping that it follows in the footsteps of past halvings and will hit a new high that has never been recorded. Based on past trends, Bitcoin price could come to be valued at $100k, which is around 10 times its price before halving.

Some crypto experts even believe that the price of Bitcoin will surpass $100k, like Jesse Powell, the CEO of Kraken, who is optimistic that after the Bitcoin halving, its price will likely shoot up to either $100k or $1m.

Countdown to the Big Day

The anticipated day of Bitcoin halving has been calculated to fall between the 14th and 18th May 2020. However, it is worthy of note that the calculation is not error-proof and a lot of things can change the projected date such as an accelerated or reduced rate of the generation of new blocks. Normally, a new block is produced by the network every ten minutes.

Bitcoin halving is expected to hold its last event come the year 2140 as that will be when the 21-millionth BTC is mined. At the conclusion of the last halving, Bitcoin miners will cease to receive block rewards. All through the existence of Bitcoin, only 32 halving events will take place and at the completion of the very last of them, no more Bitcoin will be created because the network will have reached its maximum supply.

The significance of halvings cannot be downplayed because without them coins cannot be issued as at when due. The economic model of cryptocurrencies relies heavily on halvings to ensure that the supply of coins occurs at a steady pace. This is more like a control on the rate of monetary inflation. It also sets a clear distinction between the crypto and fiat currencies, which enjoys an infinite supply.

This soon to happen Bitcoin halving is very significant because it will create a new record for the number of available coins in circulation, which will be a whopping 90% of Bitcoin’s total supply.

Conclusion

The forthcoming Bitcoin halving will definitely impact Bitcoin mining in a big way both in the long and short term. It will cause a massive shake in the mining industry which will sieve out the smaller operators to make more room for larger mining operators who have access to cheaper energy supply.

The hard truth remains that with every Bitcoin halving, the profitability of Bitcoin mining suffers a blow, making it less desirable than it once was. It will also impact the Bitcoin hash rate and eliminate the strong hikes that used to occur.

Though it is a cause for worry that miners will be left with nothing to do at the conclusion of the last halving event, however, provisions have been made already from the start by Satoshi in the form of transaction fees which will be the new compensation system for miners.

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