Will the halving of Bitcoin production cause the price of the currency to fall or soar?

When the halving of Bitcoin occurs, many people wonder if it will cause the price of Bitcoin to double, or if it will lead to a downward price spiral due to the increasing delay in confirmations.

In two months, on July 11, the production of Bitcoin will be halved. Assuming that demand remains the same, the price of Bitcoin should rise, and many Bitcoiners expect this halving to trigger the fourth bubble (the first three were in 2011, spring 2013, and November 2013). Some people believe that this time will be different because this is the first time in history that the number of Bitcoin transactions will be limited.

The relationship between price and volume was clarified in early 2013, and the following chart clearly shows the relationship between the two:

Due to Bitcoin's transaction cap, as analyzed by many commentators, the recent price is at an unprecedented level of stability, gradually moving towards the $470 range. It may go higher, especially as the production halving approaches. But such a surge is generally followed by an increase in transaction volume, which will delay transaction confirmation, leading to user complaints and hindering price increases.

If this pattern repeats and the price of Bitcoin fails to make up for the reduction in production, the miners that benefit the least will turn off their hash rate, which will cause mining to become centralized.

(Note: Hash rate is a measure of the processing power of the Bitcoin network. For security, the Bitcoin network must perform high-intensity mathematical operations. The network's hash rate reaches 10TH/s, which means that the network can process 1 billion calculations per second.)

Concerns <br/>There are concerns that confirmation delays could worsen as blocks take longer to find during the two weeks when miners turn off their hashrate and struggle to regroup. This would lead to higher costs and lower prices, causing more miners with less to gain to turn off their hashrate, sending the price of bitcoin spiraling downward.

In response to this concern, it is likely that large mining farms have taken precautions to prevent any kind of downward spiral. In addition, according to recent research analysis, some mining pools have a return rate of up to 135%, and most are above 100%, but Kano pool, which has a total hash rate of about 2%, has a return rate of only 65%.

Once the output is halved, they may suffer losses. Other mining pools, such as Antpool, which has a profit rate of only 105%, may only make a 5% profit due to the halving (assuming there are no other losses). Based on such low profits, it is likely to turn from profit to loss.

Antpool/Bitmain, one of the largest mining pools and hashrate operators, may be aware of the difficulties miners may be facing, with co-founder Jihan Wu recently sending out tweets expressing concern about the continued lack of mining output.

Like many other miners, he signed the Hong Kong agreement and had hoped that Segregated Witness (Segwit) would save the day, but with another softfork currently seeing only 35% miner adoption and Segwit not even released until mid-May, and with only two months left before the halving, any way to get volumes up again will take months.

Spy Coin may be born

Recently, Roger Ver published an article arguing that if Bitcoin cannot provide access, banks will issue "spy coins", which will eventually lead to everyone trading on a controlled blockchain.

According to Ver, Bitcoin currently has the potential to bring its powerful qualities to the masses, thereby creating a more reasonable future, so it should move faster to maintain its competitive advantage.

However, Bitcoin is weak at present, and its transaction cap, rising transaction costs, and censorship resistance have led to a distorted and divided community, and the predicted increase in transaction capacity is likely to be delayed for months.

Nevertheless, according to Patrick Dugan, a board member of the Omni Foundation (formerly Mastercoin), Bitcoin’s decentralized nature shows its resilience when many people are trying to “hype the news and manipulate the market.” Despite the current difficulties, Bitcoin’s price may still double.