Bitcoin is a deflationary currency — it only increases in value over the years. In fact, it has increased in value by almost 40,000% since its inception. Amazing, isn’t it?
One concept that propels Bitcoin’s price increment is Bitcoin halving, which happens every four years. Actually, we are expecting the 3rd halving event in May this year.
What is Bitcoin Halving?
When Satoshi Nakamoto — Bitcoin mastermind — was conceptualizing the bitcoin protocol, he put into account the concept of supply and demand. So, Bitcoin’s design is entirely different from fiat currencies; its supply is capped at 21 million and it’s meant to decrease every four years, enhancing its value. I’m told that Bitcoin is the only asset in the world with a real fixed supply.
Every 10 minutes, new bitcoins are created by a decentralized mechanism called mining. The miners involved in the mining process are rewarded with block rewards, literally, these block rewards are the newly created bitcoins that go into circulation.
Every four years, these block rewards get cut into half; in 2009, miners were getting block rewards of 50 BTC per block mined, and currently, they are getting block rewards of 12.5 BTC per block so approximately every 10 minutes, 12.5 bitcoins are created and rewarded to miners.
In May, after the 2020 halving event, miners will receive block rewards of 6.25 BTC per block mined. This slicing of block rewards into half is what we call Bitcoin halving.
Let me talk a bit about blocks now. In the Bitcoin ecosystem, the miners’ role is to confirm bitcoin transactions, and they do this in a way that it is computationally impossible for any individual to alter those validated transactions. The validated transactions are stored in blocks (a block can have about 500 bitcoin transactions in it). You can think of blocks as pages of a textbook that are chained together in sequence to form a blockchain which in this metaphor will be the whole book.
How will the 2020 Bitcoin halving impact prices?
This will be the 3rd halving event in the history of Bitcoin. Bitcoin saw its first halving event on 28th November 2012, and the second on 9th July 2016.
Let us take a stroll down bitcoin price memory lane after the halving events.
First halving.
In Dec 2011, a year before the first halving event, Bitcoin was trading at around $2. Immediately after the first halving event, there was an uptrend. Bitcoin was traded at an average of $15 in December 2012.
A year later, there was a 76,000% increase in the price of this currency; in fact, the price of the Bitcoin skyrocketed to as high as $1,242 in November 2013. However, after peaking at $1000+ that year, there was a bear market which saw Bitcoin hit a bottom of $200 in March 2015.
Second halving.
In early 2015, before the second halving event, Bitcoin prices were really low. BTC was trading between $200-300; but, it slowly recovered until it reached $504 toward the end of the year. From the halving event in July 2016, it took bitcoin almost 60 days to reach $750.
A year later, in late 2017, Bitcoin increased by 25,000% to its all-time high price of approximately $20,000. So, there was a 1,900% increase in the price from the first post-halving and the second post-halving. Just like the previous bear market following the Bull Run in 2013, Bitcoin dropped in value by nearly 80% over a 12-month period and hit a low of around $3,000 in December 2018.
Price critique from both halving events.
1. The price of Bitcoin spikes up towards the halving event and some months after then.
2. The bull market comes in many months after the halving event.
If we use the halving’s historical price analysis as our benchmark, we will most likely see a rise in Bitcoin prices again after this third halving. However, it usually takes a while for a bull run to happen. This time, the bull run will probably occur in 2021.
Most cryptocurrency evangelists predict the price of Bitcoin to go beyond $100,000 after this new halving event.
Conclusion.
Bitcoin halving is the main concept in the Bitcoin protocol that drives the bull market. Essentially, it reduces the supply of bitcoins in the market. In 2009, over 72,000 BTC were created per day; after the 2020 bitcoin halving, only 900 bitcoins will be created per day.
