The first block of bitcoin transactions, which is called the „Genesis Block“ was mined over eleven years ago on Jan 3, 2009, and it contained the message „The Times 03/Jan/2009 Chancellor on the brink of the second bailout for banks“. This quote refers to the then-current financial crisis, and now here we are again amid a financial crisis after the largest stock market crash in X years — and during a global pandemic. With the US Government money-printing machine in full gear and record low-interest rates, the ‘bitcoin halving’ will take place in these unprecedented times.
What is the Bitcoin Halving?
The total supply of all bitcoin that will ever exist is 21 Million. Every ten minutes there is a block of transactions mined in the bitcoin network. With every block mined is a „block reward“ that rewards the miner for their work. Every 210,000 blocks, the reward for mining a bitcoin block is cut in half. Every block takes ten minutes to mine, so 210,000 x 10 min is about four years. The reward for mining a block started at 50 bitcoin. That means that every ten minutes there were 50 new bitcoin in existence.
Right now, every ten minutes there are 12.5 bitcoin mined into existence. After the next halving coming up, there will only be 6.25 bitcoin mined every ten minutes. This means that the speed at which bitcoin are being created is going down. The supply of bitcoin is deflationary. Fiat currencies, such as the US Dollar or British Sterling, are inflationary because more and more of these currencies are printed. The deflationary rule of bitcoin halving is hard-coded into the protocol and cannot be changed.
What is the impact of 50% less supply being created every ten minutes?
What Will the Halving do to the Price of Bitcoin?
Insert various disclaimers: This is not investment advice, your capital is at risk, no bankroll no bets, past performance does not mean future performance is guaranteed.
Instead of 12.5 bitcoin being mined every ten minutes, now we will have 6.25 bitcoin being mined every ten minutes. Miners have to sell some of the bitcoin they mine to cover the costs of mining bitcoin, to run mining farms, buy a new mining hardware, and maintenance. Now the miners will have less bitcoin to sell. You could also speculate that the miners will be less willing to sell bitcoin at a lower price because they have a smaller supply to sell, and this can reduce sell-pressure overall.
The halving tends to bring a decent amount of media attention; you are reading this article right now and are probably curious about bitcoin. Given the current financial crisis and global pandemic, people are insecure about the future and are looking for some kind of hedge against the hardening of the current crisis. The extra media attention combined with the current situation could be a perfect storm that ignites demand for bitcoin in the general public.
How Far will it Push the Price of Bitcoin?
When we are talking about price, many people forget something that is the most valuable resource we have… or do not have… and that is time. Most people will simply ask something like “Is it going up?” or “good buy now?” which are typical signs of rekt plebs which translates to typical retail buyers with a short time horizon that will probably lose money.
History repeats itself until it doesn’t, humans follow patterns until they don’t, and the market can remain irrational longer than you can be solvent. The question you should be asking yourself is not how high will the price go after the halving, but instead how long are you willing to hold on to the bitcoin that you buy?
Bitcoin is not for the faint-hearted, you might wake up to a 5% loss only to wake up the next day to a 50% loss or a 200% gain. Bitcoin is traded 365 days a year, 24 hours a day, all over the world.
Let´s have a look at what happened leading up to and after some of the past bitcoin halvings, and what that did for price and volatility.
Will the Increase Boom Decline After the Halving Dust Settles?
In this chart from Needle In The Hayes at tradingview, we can see the huge increases in price after the halvings. Notice the price did not always jump directly up after the past halvenings, but there was an increase in price over the next few years. Also, notice some of the nasty short-term
A year after the halving in Nov 2012, the bitcoin price went from under 100$ to 1000$ and then crashed to 160$ in early 2015. Leading up to the halving in 2016, the price went to over 600$ only to go sideways and not do much until the huge rally to 20,000$ in 2017. Now here we are, leading into bitcoin´s third halving. In the past, the bitcoin price went up drastically after the halving, however, it did not happen right away and without some incredible volatility.
How high could the price go? To the moon! How much could the price do down? Enough to make you sell and tell everyone that bitcoin is a scam because you lost money.
The bitcoin halving is a historic event when the network protocol (the rules) cuts the block reward in half. This is in sharp contrast to fiat currencies that have a policy of always printing more money, bitcoin always „prints“ less. Given the current economic situation and a very uncertain future of the
COVID crisis, more eyes than ever will be watching bitcoin. The genesis block had the quote from The Times 03/Jan/2009: “Chancellor on the brink of the second bailout for banks.” We might very well be on our way to the third bailout.