Bitcoin halving effect: what impact will it have on the price?

The total supply of Bitcoin is 21 million. The block reward of Bitcoin is gradually decreasing, and the reward is halved every 210,000 blocks. The mining reward given by Bitcoin to miners is essentially the way Bitcoin issues new coins. The time interval of every 210,000 blocks is calculated based on the time interval of about 10 minutes for Bitcoin to produce blocks, and the time interval of halving is about once every four years. The next halving will be at a block height of 630,000, and the expected time is around May 19, 2020. At that time, the block reward will be directly reduced from 12.5BTC to 6.25BTC, which means that 900BTC will be issued every day instead of 1,800BTC. The amount of reduction per day is very considerable. According to the current price of more than 10,000 US dollars, for miners, it means a reduction of 9 million US dollars in income per day. By 2024, it will continue to halve, that is, the reward for each block will only be 3.125 BTC, and it will decrease from then on.

So, will Bitcoin’s halving affect the entire crypto industry? If so, what will be the impact?

What impact does the reward halving have on Bitcoin price?

History does not repeat itself, but it has its own rhythm. Bitcoin has experienced two halving events in 2012 and 2016. In the past two halving events, we have seen a certain pattern of halving effects. Of course, history can be analyzed, but the future is difficult to predict. Future events can only be described as probabilities, not inevitabilities.

The first halving event in Bitcoin's history occurred on November 28, 2012, with the price at around $12. 369 days after the halving, on December 2, 2013, Bitcoin reached a record high of around $994, an increase of nearly 8,000%.

On July 9, 2016, Bitcoin experienced its second halving event, with the price at around $650. 526 days after the halving, on December 16, 2017, it reached a record high of around $19,500, an increase of nearly 3,000%.

Blue Fox Notes found that some time after the halving occurred, the first time was about a year, and the second time was about a year and a half, reaching a historical high. In the year and a half after the halving, although there were ups and downs, the overall trend was upward.

(Price trend, source: GrayScale Investments)

Not only that, a gradual upward trend can also be seen before the Bitcoin halving. More than half a year before each halving, Bitcoin price changes have already begun to brew.

Blue Fox Notes found that from the previous two halvings, the bull market started around the halving and reached its peak about one or one and a half years after the halving. Will the third halving have the same pattern? First, will the third halving break through the new high and have a huge increase on the original basis? Second, if there will be a big increase, will it take longer or shorter to reach the historical high this time?

The first time from halving to the all-time high, it rose by about 8,000%, and the second time from halving to the all-time high, it also rose by about 3,000%. Now there are more than 10 months before the halving. According to the rhythm before the previous halving, the overall trend is a slow rise. Assuming that the current price of more than $10,000 can be maintained during the halving, then if the third halving can follow historical experience, even if the all-time high has a 1,000% increase (lower than the previous two 8,000% and 3,000% increases), it will reach about $100,000. This means that the market value of Bitcoin is at least more than $1.7 trillion, which is not small. If you look at it from the current perspective, this market value is a bit crazy, and it has exceeded the largest market value of a company in human history. But from the perspective of the future, what will happen? No one knows.

Second, it took a year to brew from the first halving to the new high, and nearly a year and a half to brew the second time; will it take longer or shorter to reach the highest point this time? If we follow the experience of the last two times, it will be at least a year or a year and a half later, which means that the peak of the bull market will not come until May or November 2021. If it takes a longer brewing time, it may not have a chance to reach the peak until 2022. As the price rises, will the increase be lower? According to historical experience, due to the large price base, the increase will decrease, but the specific amount or whether it will repeat the previous experience. No one knows, we can only wait. Because the factors triggered each time are different, it is impossible to completely replicate the previous trajectory.

So, is it possible that the market will not follow the usual routine, such as a sharp drop or other situations? It is possible, especially with large fluctuations before and after the halving. If history is the same every time, it will be boring. One thing to note is that the value of Bitcoin itself is supported by computing power, most of which is energy conversion. In other words, Bitcoin has costs, and due to the existence of competition, its marginal costs and marginal benefits will eventually tend to equilibrium.

This means that with the arrival of halving and the continuous increase in Bitcoin hash rate, the production cost of Bitcoin will increase significantly. If the price of Bitcoin does not rise, then the cost of mining will not be able to support it and the industry will be in trouble. Currently, transaction fees only account for a small part of the overall income of miners. Recently, the daily income of Bitcoin miners is around 20 million US dollars, while the overall income from fees is less than 1 million US dollars. The mining industry cannot be supported by transaction fees. From this perspective, Bitcoin halving will also have an important impact on the Bitcoin mining industry.

Will the reward halving lead to a decrease in computing power?

From 2009 to 2012, the reward per block was 50 BTC, and about 7,200 BTC were issued daily; from 2012 to 2016, the reward per block was 25 BTC, and about 3,600 BTC were issued daily; from 2016 to 2020, the reward per block was reduced to 12.5 BTC, which is the current reward, and 1,800 BTC were issued daily; from 2020 to 2024, the block reward continued to halve to 6.25 BTC, and 900 BTC were issued daily, and it was gradually halved. The BTC reward for miners is reduced every four years, and if the price does not rise, it means that the income will be halved.

Only price increases can offset losses. But price increases are not certain. Halving is a critical node for the mining industry. If income cannot maintain a certain level, many small and medium-sized miners may leave the mining industry. Therefore, Bitcoin halving may also bring about a further reshuffle of the mining industry.

At present, Bitcoin hash rate has not dropped significantly due to the previous price drop. After a certain drop, the overall trend is still rising, and it currently exceeds the hash rate at the peak of the price in December 2017. Even the halving effect will not bring about a sudden drop in hash rate. There was no sudden drop in hash rate after the last two halvings.

(Source: blockchain.com)

Blue Fox Notes found that historically, the block reward halving did not lead to a decrease in the mining hash rate. From the last two times, the reason why the hash rate did not decrease was mainly due to the rise in Bitcoin prices. This led to miners not taking measures to withdraw computing power in response to the Bitcoin halving.

Conclusion

If we follow the effects of the previous two halvings, the price of Bitcoin will rise steadily before the halving (with fluctuations during the period), and the bull market will officially start after the halving, which will last for about one to one and a half years, or even longer. There will be fluctuations during the period, but the trend is rising. As the rising momentum increases, it attracts the interest of more newcomers or institutions, and finally reaches the peak under the impetus of various publicity. At the same time, as the price increase offsets the halving reward, the competition in the mining industry continues, and the hash rate is still growing.

This is the halving effect of Bitcoin, but history will not repeat itself. What will happen in the future? Will the halving effect of Bitcoin continue in May 2020? What do you think?

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Risk warning: All articles in Blue Fox Notes do not constitute investment recommendations . Investment involves risks . Investment should consider personal risk tolerance . It is recommended to conduct in-depth research on the project and make your own investment decisions carefully.