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After experiencing several mining reward halvings, people in the industry seem to have taken it for granted that the halving of rewards will drive the market up. However, do you know the real logic between the halving of mining rewards and the market? This Monday, LTC (Litecoin) carried out a new round of mining reward halving. The halving occurred at the LTC block height of 1680000, at about 6 pm on Monday. After the halving, the Litecoin mining reward was reduced from 25LTC to 12.5LTC. With the help of this round of halving, the price of Litecoin has started to pick up since the beginning of the year. It has climbed from 40 US dollars to more than 120 US dollars, and the current price is stable at around 90 US dollars. The halving mechanism is an important part of the Bitcoin issuance mechanism, and it has since been retained in many Bitcoin-imitating mechanisms, becoming a long-term favorable consensus.
1. What is the mining reward halving?
Mining rewards are the only issuance mechanism for Bitcoin and other Bitcoin-like cryptocurrencies including LTC, BCH, etc. When designing Bitcoin, Satoshi Nakamoto set a gradient of every 210,000 blocks (4 years) to halve the mining rewards.
Since its birth, Bitcoin has experienced two halvings: in 2012, the mining reward was halved from 50 BTC to 25 BTC, and in 2016, the mining reward was halved from 25 BTC to 12.5 BTC until now. It is expected that the next Bitcoin reward halving will occur in May 2020, when the mining reward will be reduced to 7.25 BTC.
Litecoin, which was born out of Bitcoin, also has a similar halving mechanism. The mining reward is halved every 840,000 blocks generated on the Litecoin chain. Based on the speed of Litecoin producing one block every 2.5 minutes, a halving cycle occurs approximately every four years.
Similarly, Bitcoin’s fork coin BCH will also usher in its first halving in early 2020.
2. The impact of historical reward halving
As a cryptocurrency, inflation and the sustainability of the mining ecosystem are issues that must be considered in advance. The design of halving mining rewards is a long-term mechanism designed specifically to curb cryptocurrency inflation and prolong the mining ecosystem, and is widely recognized by the market.
The total amount of Bitcoin is 21 million, and it has experienced two rounds of halving of mining rewards. The current circulation of Bitcoin in the market accounts for 83% of the total, and the remaining 17% of Bitcoin to be mined can still be mined for decades under the halving mechanism, effectively ensuring the full continuation of the Bitcoin mining ecosystem.
Historically, the halving of Bitcoin and Litecoin has brought about a strong positive consensus and driven the rise in the value of the currency. Especially for Bitcoin, the positive impact of halving can often stimulate the bull market of the entire encrypted digital currency market.
The first halving of Bitcoin occurred in December 2012, after which the price of Bitcoin continued to rise, reaching the first peak in Bitcoin history of $1,200, followed by a correction and a long bear market.
The second Bitcoin reward halving occurred in July 2016, and history repeated itself. With the start of the halving market, it took nearly a year and a half. The price of Bitcoin hit another historical peak of $20,000 at the end of 2017, and then there was a long bear market. To this day, we have not been able to get out of the shadow of the previous bull market.
The cyclical fluctuations of the halving are roughly like this: the market brews sentiment half a year in advance - halving occurs - enters a bull market and starts a full upward mode - sets a historical high - a long correction and bear market - another round of halving sentiment brews.
Litecoin's influence and market consensus are far lower than Bitcoin, and its halving cannot become a switch for the entire market like Bitcoin.
The impact of Litecoin's production reduction is more on its own market, and the time period for the entire halving process to drive the market has been shortened. As the halving ends, the market will quickly pull back.
3. Is the reward halving the reason for the bull market?
Judging from the data, the halving of rewards is the main reason for the rise in the price of encrypted digital currencies. Logically speaking, the production reduction mechanism suppresses the supply of the market and naturally raises the price, but is this really the case?
83% of Bitcoin has been issued now, which means that most of the Bitcoin has actually been mined and is in circulation. So can the production reduction of the remaining 17% really have such a big impact on the supply and demand relationship of Bitcoin?
As the next halving approaches, the general psychological expectation of the market is that the price of Bitcoin will rise from a low of $3,000 to $20,000 or even a record high of $100,000.
Many people are also very skeptical about the claim that the relationship between production cuts and prices is driven by changes in supply and demand. We prefer to believe that a more comprehensive force is driving the rise in Bitcoin's value consensus. For example:
1): The global topic of Bitcoin reward halving will once again attract more off-market funds to enter the market, forming a siphon effect of funds.
2): The pre-emptive ambush of favorable factors by on-site funds has greatly reduced the liquidity of Bitcoin in a short period of time
3): Capital takes advantage of the market sentiment of halving to raise the price of Bitcoin
Driven by the cooperation of incremental, existing and market-making hot money, the market will reach a price consensus within a period of time before and after the halving, which is closer to the truth of the rise in Bitcoin prices after the halving. The price increase can be explained simply from the supply and demand relationship, but it cannot explain the subsequent long bear market.
However, in most cases the truth is not important. All we need to know is that the next round of Bitcoin halving will be in the first half of 2020, which is not far from us. The best way is to enter the market and ambush as soon as possible. |
