Bitcoin’s grand design suggests that every time 210,000 blocks are mined, the miners’ reward divides into two to fight inflation. If you do the math, you’ll find out that halvings are meant to happen every 4 years, roughly.
We’ve witnessed two Bitcoin halvings already – once in 2012 and once in 2016 – and each time it caused a little bit of a drama and affected the price of Bitcoin. As the next Bitcoin halving is going to happen in May 2020, the crypto community has started taking their guesses on how will it impact Bitcoin’s price.
But before we start analyzing the theories on whether Bitcoin halving and the coin’s price are connected, let’s get to the bottom of why it is happening.
Why Bitcoin Needs a Halving
Fiat currencies have an endless amount of supply and tend to lose their value with time due to inflation. With Bitcoin, it’s different because the total amount of coins is fixed (there are only 21 million coins that can be mined) and the new coins are minted by the miners and not just printed by the state.
A block of transactions is found or solved by the miners and recorded on the blockchain every ten minutes. This is hard work that requires electricity and, these days, also powerful equipment. However, it is generously rewarded – once the block is solved, Bitcoin miners get their block rewards.
Here’s one unbearable fact to take on – if you started mining 11 years ago, you could get 50 Bitcoin as a block reward by mining alone via your PC. But things have changed drastically since then.
Although mining new coins means increasing the Bitcoin supply, you can still avoid inflation if the supply grows proportionately with the number of people who use the currency. So if we want the prices to remain stable, we need to figure out a way for sustainable growth.
Despite the fact that 80% of Bitcoin has been mined in the past ten years, the halving events and raising mining difficulty will slow down the mining process significantly. As a matter of fact, we expect to see the last Bitcoin being mined only in the next century. Still, a long way to go until the price stabilizes.
Bitcoin Halving vs Bitcoin Price
At the moment, Bitcoin miners get 12.5 Bitcoins for finding a block and after the next halving the reward will reduce to 6.25 Bitcoin. And that, in turn, means that the total supply of new coins will be reduced by half.
In 2012 Bitcoin went through its very first halving and the rewards became twice less, from 50 Bitcoins to 25 Bitcoins per block. Curiously enough, the price of Bitcoin tripled a few months before the halving, going from $5 to $16, and then stabilizing at $10 at the month of the event. In 2016, history somehow repeated itself and Bitcoin’s price doubled a few months before the halving event and stabilized somewhere in the middle right before the halving took place.
Based on history, the community expected a positive Bitcoin price trend this November but this clearly didn’t happen. In fact, the current Bitcoin price just hit its 6-month low.
However, it may all be coincidence. Considering that the price of Bitcoin didn’t change much a week before the halving in both of the previous cases, it might as well indicate that the event has nothing to do with price movements.
Experts’ Thoughts on Bitcoin Halving Affecting the Price
Bitcoin investor and economist Tuur Demeester suggested that to keep Bitcoin’s price higher than $8,000 before the halving event, during the next 200 days we need to invest at least $2.88 billion in the market.
In this case, it is only fair to expect that the selling pressure after the Bitcoin halving will be lower and the price will eventually go up.
In a youtube video stream, Willy Woo, Bitcoin analyst, and trader Tony Vays discussed the effect that the next Bitcoin halving may have on the price of the coin.
Vays noticed that:
“At some time before the halving […] what I can foresee is that one final capitulation – like if we consolidate in this $7,500 to $9,000 range going into January and February – I can see a swift 50% drop similar to the drop we had in December last year.”
He also disclosed the numbers, “I can foresee something like that for the price of Bitcoin to fall from this $8,000 area down to $5,000 or even $4,500, but then it’s back above $9,000 or $10,000 within weeks.”
Who knows, maybe the final capitulation is what’s actually happening right now as the price of Bitcoin is plummeting.
The Bottom Line
Apart from regular price fluctuations, the Bitcoin halving and upcoming reduction of block rewards is one of the most-discussed topics in the crypto community these days. Twitter-based philosophers are analyzing the past and making their new predictions based on Bitcoin’s history, many of them are sure the price will skyrocket.
But the truth is that we cannot build a technical price analysis that is built on one single event – there are multiple factors that may (or may not) affect the price of Bitcoin.