Every four years! Bitcoin is experiencing its third halving since its launch. Wall Street tycoons are strongly supporting it. Is another round of "wealth creation myth" coming?

Currently, Bitcoin mining pools are accelerating the mining process. The halving expectation has triggered market optimism. On May 8, the price of Bitcoin surged to $10,000. Since Bitcoin fell below $3,800 on March 13, the price of Bitcoin has risen by more than 160%.

Bitcoin traders and investors are nervously awaiting an “inevitable event” next week.

When Bitcoin founder Satoshi Nakamoto designed Bitcoin, he added a halving mechanism. According to this mechanism, miners can get 50 Bitcoins for each block they pack. After about 210,000 block transactions are completed, this bonus will be halved. The blockchain network generates a block about every 10 minutes, and the time interval of 210,000 blocks is about 4 years. This mechanism will continue until about 2140.

Bitcoin mining rewards have been halved twice, on November 28, 2012 and July 9, 2016. The third halving will occur next week, when the block reward will be halved from 12.5 bitcoins to 6.25 bitcoins.

Currently, Bitcoin mining pools are accelerating the mining process. The halving expectation has triggered market optimism. On May 8, the price of Bitcoin surged to $10,000. Since Bitcoin fell below $3,800 on March 13, the price of Bitcoin has risen by more than 160%.

The Bitcoin halving is significant because it marks the dwindling supply of Bitcoin. By 2140, all Bitcoins will be mined, and mining revenue will only be fees, with no block rewards.

There are different opinions in the industry about the exact time of Bitcoin halving. Some estimates show that the third halving will take place at 1:00 a.m. New York time on May 12 (13:00 Beijing time on May 12).

However, this time may be brought forward. According to Michael Maloney, CFO of cryptocurrency mining company Coinmint LLC, who checked the Bitcoin blockchain data, the Bitcoin block reward halving time is likely to be brought forward to 7:45 p.m. New York time on May 11 (7:45 a.m. Beijing time on May 12), which means that the "halving" will be brought forward by 5 hours and 15 minutes.

William, chief researcher at OKEx Research, said that to be more precise, Bitcoin will be halved at a block height of 630,000.

“The reason why the halving time of Bitcoin changes is because the block time of Bitcoin changes dynamically. Bitcoin produces a blockchain approximately every 10 minutes, but due to changes in the computing power of the entire network, this block time will increase or decrease. Because of this, Bitcoin has added a difficulty adjustment mechanism, which stipulates that the difficulty value of mining every 2016 blocks will be automatically adjusted to maintain the dynamic balance of Bitcoin's 10-minute block time.” William said.

Bitcoin mining rewards have been halved twice before. Next week's halving is different from the previous two.

This time, the Bitcoin halving reward dropped from 12.5 Bitcoin to 6.25 Bitcoin, a reduction of only 6.25 Bitcoin. Prior to this, the first Bitcoin halving reduced the block reward from 50 Bitcoin to 25 Bitcoin, a reduction of 25 Bitcoin; the second Bitcoin halving reduced the block reward from 25 Bitcoin to 12.5 Bitcoin, a reduction of 12.5 Bitcoin.

"Compared with the previous two halvings, the absolute value of this halving is smaller. The reason why the market pays attention to the halving is that the halving will lead to a decrease in Bitcoin production, affecting the supply and demand relationship in the market, and thus raising the price of the currency. However, compared with the previous two halvings, the impact of this halving on the Bitcoin market is obviously not as great as the previous two times. This is the most obvious difference of this halving." William told the reporter of the International Financial News.

The market is looking forward to this Bitcoin halving. Generally speaking, each halving will trigger another round of Bitcoin bull market. Because although Bitcoin will continue to be produced, its issuance volume has been determined in advance. If the supply of Bitcoin decreases and the demand for Bitcoin remains the same, the price of Bitcoin will rise. If the supply of Bitcoin decreases and the demand for Bitcoin increases, the price of Bitcoin will rise sharply.

In 2012, the mining reward was changed from 50 bitcoins to 25 bitcoins, and the price rose by nearly 8,200% in one year. But after the peak, the bitcoin price experienced a bear market in 2013, and the price fell by about 80%. The second bitcoin halving occurred on July 9, 2016, and in mid-December 2017, the bitcoin price peaked at $20,074, an increase of nearly 3,000%. At the same time, the bitcoin price began to fall, and the market bottomed out in December 2018.

Forbes reported that billionaire Bitcoin bull Tim Draper believes that the price of Bitcoin could rise to $250,000. Buffett's Books founder Preston Pysh believes that Bitcoin could soar to $300,000 after the halving. Former Goldman Sachs GS hedge fund manager Raoul Pal predicts that the price of Bitcoin will reach $1 million in 3 years. Silk Road founder Ross Ulbricht predicts that Bitcoin could reach a sky-high price of $333 million.

CoinCorner and many other bitcoin exchanges around the world have seen an increase in new users signing up in recent months, with London-based bitcoin exchange Luno claiming it will hit 4 million users in the coming days.

According to multiple foreign media reports, Paul Tudor Jones, founder and CEO of Tudor Investment Corp., is buying Bitcoin. He believes that buying Bitcoin can be used to hedge against the inflation of fiat currencies caused by the printing of money by global central banks. He also told clients that this is similar to the role played by gold in the 1970s.

The US government is taking the most aggressive steps to provide stimulus to the economy, but stimulus will be accompanied by inflation and subsequent pressure on the value of the dollar. This could indicate a bullish outlook for Bitcoin.

Paul Dude Jones is one of the first big Wall Street investors to invest in cryptocurrencies. Jones said he will focus on betting on Bitcoin. On the CME futures market, Bitcoin June futures hit a high of $10,155. Bitcoin futures have risen nearly 38% this year and nearly 70% in the past 12 months, far outperforming gold. This month alone, Bitcoin has risen nearly 5.9%, but gold, as a safe-haven asset, has fallen 1%.

From the overall situation, since the birth of Bitcoin, the price has fluctuated greatly. It once soared from $2,000 to $19,000, and also experienced a decline of nearly 80% within a year.

In early February 2020, the price of Bitcoin once again reached the $10,000 mark. However, the market crash in March hit investors hard. But since March, the Bitcoin market has gradually rebounded, breaking through $5,000, $6,000, $7,000, and $8,000 from a low of $3,800. On May 8, the price of Bitcoin exceeded $10,000, reaching a new high since February 24, 2020.

However, William believes that Bitcoin’s breakthrough of $10,000 is not entirely related to the “halving” because the Bitcoin halving has not yet occurred. The effects of the halving will not appear before the halving.

William believes that the current breakthrough of Bitcoin at $10,000 is mainly related to two points: first, the fading of the global liquidity crisis and the recovery of the Bitcoin market. The global liquidity crisis that occurred in early March this year caused a plunge in all kinds of risky assets around the world, even cryptocurrencies are no exception. At present, central banks around the world are implementing loose monetary policies, and the gradual control of the epidemic has restored investors' confidence in the market. As of today, the strong rebound of US stocks has completely wiped out the plunge since March this year, and the same is true for the cryptocurrency market. The plunge has led to an over-underestimation of Bitcoin prices, and the upcoming Bitcoin halving will raise the mining cost of Bitcoin, and the mining cost is the "psychological bottom price" of Bitcoin, so Bitcoin will inevitably rebound. Secondly, the current market's halving expectation of "Bitcoin price rise after halving" still exists. Although the market crash at the end of March hit Bitcoin investors hard, the Bitcoin market has been gradually rebounding since March. Market investors have shown new enthusiasm in the face of the market recovery and have begun to be confident in the "halving expectation".

Based on the historical experience of Bitcoin bull market after the first two halvings, many market investors are optimistic about the Bitcoin market after this halving.

However, halving also brings crisis.

As far as the Bitcoin mining market is concerned, the halving will cause the mining industry's revenue to be halved, so many small mining companies will be forced to shut down old mining machines, and may withdraw from the "mining" industry because they cannot afford the high cost of new mining machines.

The crisis brought about by the halving is mainly concentrated in the Bitcoin mining industry, which puts higher demands on the operation of the industry.

"First, since the mining industry is a capital-intensive industry, the capital expenditure of old mining machines is fixed, so the operating leverage is high. When the output of mining machines is suddenly halved, the profits of old mining machines will be severely squeezed, and even losses will occur; secondly, mining farms need to pay electricity bills when mining, which is the variable cost of mining machines. The output of a single mining machine decreases with the increase of the computing power of the entire network, that is, it decreases with the increase of time. When the daily mining income of the mining machine is less than the variable cost (electricity bill + labor cost, we ignore labor cost here), the mining machine will be shut down. Due to the halving of output, the income of mining machines is halved, which directly leads to the shutdown of mining machines much earlier." William said.

According to William, this will lead to a greater concentration of mining companies. At the same time, in order to cope with the halving of rewards, miners have to upgrade their mining machines, and the performance and efficiency of mining machines will be further optimized. In the medium and long term, the computing power of the Bitcoin network will continue to increase.

On May 8, as Bitcoin broke through 10,000, blockchain stocks in the U.S. collectively rose. The share price of Chinese mining machine company Canaan Technology surged 15%, leading the Chinese concept stocks. According to other media citing industry sources, Bitmain, Shenma and other new high-computing power mining machines have received a large number of orders and are urgently starting to increase production capacity.