Let’s talk about the next Bitcoin halving

As we all know, Bitcoin halving is a very significant event in the cryptocurrency world and also a very important time point. So if you are a new investor who has not experienced the first two halvings, perhaps after reading this post, you can understand why everyone is looking forward to the halving in 2020.

Moreover, in a few months, another very important node - Litecoin halving - will be coming soon.

1. Let’s start with the previous two halvings

Bitcoin will halve, this is a topic that has been talked about for a long time. Who doesn’t know that Bitcoin will halve?

So I won’t waste words here to explain why Bitcoin will be halved.

The block height of Bitcoin's production halving is shown in the figure:

On January 3, 2009, the Bitcoin Genesis Block was created, with a block reward of 50 BTC.

On November 28, 2012, the 210,000th block was mined, and the block reward was halved for the first time, to 25 BTC.

On July 10, 2016, starting from block 420,000, the Bitcoin reward per block was halved to 12.5 BTC.

When will the halving take place in 2020? Currently, the block number is close to 570,000 blocks, and there are more than 60,000 blocks to 630,000 blocks. According to the standard of 10 minutes per block, it will be about 400 days from now, which is about a year away. At that time, the block reward will be less than 10 bitcoins for the first time, and each block will only reward 7.5 BTC.

Of course, this time may be brought forward. If it happens quickly, we should be able to see a halving of production shortly after 2020.

So as the most important cycle of Bitcoin, what was the price trend of Bitcoin in the previous two halvings?

Here’s how Bitcoin’s price performed during its first halving:

The first halving was not a sensitive event for ordinary people, as mining had not yet become an “industry” and had not yet entered the era of dominance by mining farms and mining pools. It also did not cause any major waves for the market. People belatedly discovered the value of Bitcoin in 2013, and the Bitcoin carnival really began.

This is the price performance of Bitcoin after its second halving.

From the price charts before and after the two halvings, we can see that although the price does not skyrocket immediately after the halving, Bitcoin will reach a new height after the halving. The overall trend looks like this: after the halving, the price starts an upward channel, rises slowly, and finally skyrocketed.

2. The Cold Winter Before the Last Halving

The history of Bitcoin is not long, only ten years. In just ten years, there have been only two halvings. Obviously, both halvings brought about an unprecedented bull market. Of course, we cannot say that the bull market was brought about by the Bitcoin halving, but it is obvious that the halving of production is the most important price cycle node of Bitcoin.

So how difficult was it for this industry during the second halving, which was at the end of 2014 when the market bottomed out?

Let’s just talk about the mining machine manufacturers and exchanges at the top of the industry’s food chain.

First, let’s talk about exchanges. This is from Lao Mao, the boss of Yunbi (later one of the largest exchanges in China):

This article, “How to Survive the Cold Winter”, is filled with disappointment, chill, and helplessness. The exchange bosses did not have much confidence in the industry’s prospects. Despite the halving expectations, everyone was mentally prepared for “another three years of bearishness”.

Next is the mining machine manufacturer. Xiaoqiang, the major shareholder of the largest mining machine manufacturer in China at that time, said with emotion:

The BakeCat mining machine, which has a similar status to the current Antminer, is having such a hard time. One can imagine how difficult the days are for other mining machine manufacturers.

In fact, compared with 2014, when the last halving occurred, the situation in 2018 is much better. Although the domestic investment environment has also entered the same stage as in 2014, full of disappointment of losing money, uncertainty about the future, hostility and chill (defending rights everywhere, quarreling, and even going to court), the leading mining machine manufacturers are preparing to go public, exchanges are going overseas, and project parties are still vigorously developing the blockchain industry. The overall environment is still much better than in 2014, but no one is sure what the future will be like.

Compared to the bleak state of the cryptocurrency world in 2015, I think the state in 2019 is already very good. Everyone is still relatively optimistic, the market sentiment is still positive, many projects have enough food to survive the winter, are still working hard on development, and various technologies are constantly being updated and iterated.

3. Why does halving affect prices?

First, here is the price action before the 2016 halving:

It can be seen that the halving in 2016 caused the price of the currency to rise ahead of schedule.

For reference, this is what happened to Litecoin during its last halving:

Litecoin prices surged from $1 in May to $8.97 in July, and despite a drop after the positives materialized, the price is still three times higher than before the halving.

Who is most sensitive to the halving of Bitcoin production? Naturally, it is the guardian of the Bitcoin blockchain, the miners. Under the condition that the difficulty of the entire network remains unchanged, the Bitcoin rewards mined by mining machines with the same performance and computing power will be directly halved, that is, the mining income will be reduced by half, which is unbearable for many small mining farms. Therefore, if the price does not rise immediately or in advance, the miners will have a harder time. Shutting down, selling mining farms, and persisting at a loss will all happen. In extreme cases (the price of the currency does not rise at all), low-end mining machines and mining farms with relatively expensive electricity costs will have to shut down and go offline, making the difficulty of Bitcoin mining lower, and the mining industry will become more cruel, so cruel that only large mining farms, large mining pools, and the most advanced mining machines can survive.

After all, mining is also a business. If we must mention faith, then only profitable faith can last. They mine not to accumulate more and more coins, but to make more and more money, or at least to sell the mining costs such as electricity first, so basically the coins mined need to be sold on the market. The daily output can be close to 2,000 BTC, which is almost 50 million. In addition, after all, the price of coins is expected to fall, so the owners of mining farms often need to open short orders to hedge the risk of falling and protect their mining income. If you don’t understand opening short orders, you can understand it this way: miners sell the coins they will mine in the future in advance.

There is a popular saying in the industry: “Miners are the biggest short sellers in the Bitcoin world.” Although this view is still controversial, miners’ electricity bills are actually paid by this market.

Therefore, for the market, the reduction in mining output means that the selling pressure in the market will be reduced, which has a relatively positive effect on the market.

Of course, these are all superficial phenomena. The biggest significance of each Bitcoin halving is to tell everyone: Bitcoin is really getting less and less, and if you don’t buy it now, you won’t be able to buy it anymore!

4. Speculations about the next halving

After studying the price curve of Bitcoin over the past decade, we can see that the biggest positive factor in the Bitcoin world - block reward halving can be used as the main reference node of the Bitcoin cycle. And if we use the previous round of halving as a reference, we can infer some interesting results:

1. We may currently be in the bottom price range of a large cycle (similar to the end of 2014 to the end of 2015).

2. Before the halving, speculators will start to hype up the price, which means they will push up the price before the halving, but it is hard to say whether the increase will be effective.

3. The halving of output does not threaten the "production work" of miners. Miners have strong adaptability, so the security of Bitcoin is worry-free.

4. Prices always react in advance. For example, if the entire market believes that a coin will increase 10 times in a month, then it will increase 10 times today. The same is true for Bitcoin. If people believe that halving will be a good thing, then it will start to rise much in advance.

5. Bitcoin is becoming increasingly difficult to obtain. 2020-2024 will be a critical four years for Bitcoin.

Author: William Chen