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How Will the Bitcoin Halving Affect the Price of the Cryptocurrency?

Bitcoin halving happens every four years and with it comes a volatility in the price of the cryptocurrency. Will the same pattern happen after the forthcoming event? Read on to find out.

By Sami Akdoglu

Thumbnail Image for Blog Article How Will the Bitcoin Halving Affect the Price of the Cryptocurrency?
date_rangeJanuary 31, 2020 remove_red_eye 15908
Bitcoin Halving is a leading topic among crypto enthusiasts as the world ushers in the 2020s. With the event coming up mid-2020 in Zadar, Croatia, most crypto dealers are wondering Bitcoin, and especially its pricing, will be affected as a result.

The world’s first cryptocurrency has gone full circle; from its infancy days when a coin was worth the equivalent of $0.001, to the peak at just below $20,000. During this illustrious decade, its proponents have won many battles. However, they have had to fend off a myriad of challenges.

Scaling the network while maintaining the functionalities at peak performance has been a key problem. The runaway price surges and corresponding falls supported by sometimes not so dependable bull runs, is another, especially for traders. However, the key concern now, with the Bitcoin Halving coming in another six months, is that most crypto traders are wondering how the event will affect the price of the world’s leading crypto.

For starters, here are a few facts to get you going.

Bitcoin Halving – What is it All About?

Bitcoin’s supply is limited algorithmically; only a maximum of 21 million coins will ever be in circulation. This is unlike fiat, whose release depends on the fiscal and monetary environments. The coin, as such, is a deflationary asset.

The addition of Bitcoin into circulation happens when a miner successfully solves a block of Bitcoin transactions, adding the same to the Bitcoin Blockchain.

As a reward for the complicated and expensive endeavor, these miners get an incentive called a block reward for their troubles.

Initially, the block reward was 50 BTC. It has since gone down to 12.5 BTC. Over time, the reward has been cut down twice through a feature programmed in the Bitcoin Blockchain to occur every four years.

How Bitcoin Halving Affects the Price of BTC

Incidentally, halving tends to affect the price of the cryptocurrency positively. Crypto enthusiasts have suggested many theories to explain this trend. The most logical, however, is that the law of supply and demand kicks in: Since the network produces fewer Bitcoin, an increased scarcity that develops as a result, makes the existing coins in circulation more expensive.

This explanation, however, is basic. For an in-depth explanation of why a Bitcoin halving corresponds with the succeeding price changes, it is important to evaluate the role that miners play in the network.

Mining brings, on average, some 4380 new blocks to the Bitcoin Blockchain each month. Going by the current block reward and the price of Bitcoin at the time of doing this article, miners earn 4380 Ă— 12.5 Ă— 7300 = $399,675,000 per month.

The next halving will bring the block reward down to 6.25 BTC. Meaning, the total revenue earned by miners will come down to (assuming the Bitcoin price remains constant) 4380 Ă— 6.25 Ă— 7300 = 199,837,500 each month.

Because this is a direct drop in revenue, miners can choose to either give up mining, or they can hold on to their coins and only sell at a favorable price; a practice known in the cryptocurrency circles as HODLing.

Over time, history shows that a bit of both scenarios have played out. Whenever a halving occurs, some miners choose to pursue other ventures while the remaining lot do mine and HODL.

Previous Price Fluctuations

Before the first Bitcoin halving in November 2012, the price of Bitcoin was $11. A year after the halving, the price rose dramatically, and reached $1,100 sometime in 2013. The sharp increase was, however, followed by a price crash that left the crypto trading at between $220 and $240.

The next halving in July 2016 came with a similar trend. At the time, Bitcoin was trading at between $580 and $700. Several months after the halving event, the price of Bitcoin assumed a rising trajectory.

What is Likely to Come with the Next Bitcoin Halving

An analysis of the data provided by Coindesk highlighting the history of the Bitcoin price showed that considerable volatility happens between 12 and 18 months after every halving. According to this data, bitcoin rose from $11 to $1100 after the first halving only to slide back to $220. The second halving saw the price of the crypto jump from $230 to almost $20,000, then sliding back to $4,000.

So, what is the next halving likely to bring? Without the fear of contradiction, the price is likely to rise, though it will be too early to affirm this, or rather, make the likely rise a subject of a positive prediction.

However, a rise looks like the most reasonable outcome. It is important to note, though, that many variables often are at play at every halving. The first event was the first of its kind; meaning no one had an inkling of what may happen. The second halving came with the steady rise of Ethereum and a rife activity in the ICO space.

In the next halving, a lot may happen considering that there is a heightened public awareness about cryptocurrencies, and the institutional investors have shown more interest now more than ever before.

These facts, notwithstanding, the price of the cryptocurrency has shown a remarkable parallel between every halving and volatility in the price of Bitcoin. Clearly, the changes in the supply side seem to happen every four years and almost at the same time after a halving. The data, as such, provides a good picture of what may transpire after the June 2020 event.

In Summary

Many cryptocurrency enthusiasts are waiting for the next Bitcoin halving with bated breath. The chances of making a killing on the Bitcoin prices exist. And though such price changes are still not cast on stone, history is stubborn and likes to repeat itself. Investing in the cryptocurrency in the next few months, as such, is not such a misinformed idea going by what has transpired in the past.

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