June 7th 2020
Bitcoin halvings take place about once every four years, or once every 210,000 blocks. The significance of the event this year, given the carnage being wrought in the economy by Covid-19, extends well beyond the bounds of the crypto space. While stocks have generally recovered from their corona lows, we are very much still in uncharted, troublesome waters; a fact reflected by the recent US jobs report. With all the uncertainty, people are desperate for a way forward, and many are turning to crypto as a vehicle out of this mess. Given that the two previous Bitcoin halvings preceded dramatic bull runs, many are hoping that history will repeat itself here with major profit opportunities opening up and crypto providing a beacon of hope in an economic environment that needs it.
With the second week of May in the books, the halving has finally happened. In this article we are going to give you a rundown of everything you need to know about the big event and look at how things will play out in the crypto industry in 2020.
The Halving Explained in Layman’s Terms
How are Bitcoins formed? The answer is pretty simple: Bitcoins are the result of mining activity that is done to secure the network while processing and verifying every Bitcoin transaction on the blockchain. By solving difficult computational problems with the use of special equipment called “mining rigs,” miners have the chance to receive a certain amount of Bitcoins that enter into circulation as a block reward.
This reward system has ensured that the Bitcoin network is kept running by miners for the past 10 years. Miners who find new blocks by completing computational problems are rewarded with a sum of Bitcoins. While the cost of running mining rigs is expensive, the rewards usually make up for that.
Halvings are events where the number of Bitcoins miners receive when they find new blocks is cut in half. As mentioned, there have already been two Bitcoin halving events so far, with the first reduction happening on November 28, 2012, and the second – on July 9, 2016. The earliest miners started with rewards of 50 BTC appearing every 10 minutes, then this figure fell to 25 BTC before again falling to the 12.5 BTC. Consequently, the 2020 halving has reduced that number to 6.25 BTC per block that is currently being issued as a reward.
The halving events will cease once all of the 21 million total possible Bitcoins are mined, which is supposed to occur approximately in the year 2140.
Estimating the Halving Dates
There are several models that can be used to predict the time when the next halving will happen. The following data is used when calculating approximate halving times:
– Average daily block time. This refers to the average execution time of all Bitcoin blocks in the most recent 24 hour period. To estimate the number of days left prior to a halving, we need to multiply the average daily block time by the number of blocks left to be mined.
– Cumulative average block time. This is the average execution time of all Bitcoin blocks mined up until the present moment. To estimate the number of days left before a halving, we need to multiply the cumulative average block time – taken as 600 seconds – with the number of blocks left to be mined.
– Simple 50 day moving average block time. This is obtained by adding the average block time of blocks executed daily during a specified period. To understand whether the block time will keep gaining momentum or not, we need to look at the simple moving average trajectory: an upward trend means the halving will occur faster than expected and a downward trend means the opposite.
– Exponential 200 day moving average block time reacting greatly to the latest changes in average block time which can be identified if the average block time crosses the moving average block time and the trend reverses.
How Will the Halving Affect the Bitcoin Price?
No one can say exactly why Satoshi chose this particular means of distributing coins. Here is what we need to focus on when it comes to Bitcoin entering into circulation. Unlike most government-pegged currencies, which are minted by financial institutions as a result of various political processes, Bitcoin came into being with a limited supply, which gives it an inherent scarcity. Programming the block reward to decrease in due course turns Bitcoin into an even more valuable asset that is free from any form of state control over money supply. The scarcity of the asset and the way it is distributed is also maintained by its open source software which requires a high level of interoperability and coordination between network users when it comes to making any changes to the Bitcoin code.
Thus, the scarcity of Bitcoin has an impact on its market price. In theory, as the supply of new coins declines, the demand for them increases, leading to an increase in price. The 2012 and 2016 halvings have followed this pattern, although the immediate effect was rather small. But as for the year-long run, after the second halving Bitcoin went on a bull run that saw it reach unprecedented heights.
The anticipation that Bitcoin will follow a similar price pattern this time around has many scrambling to get in on the action immediately. If you are looking to do that as well, make sure you do so with caution. When buying and trading digital assets you want to make sure you are doing it on a reliable and safe platform. Liquidity is also a big deal as it will ensure that you will be able to buy and sell at a fair and accurate price.
Why the 2020 Bitcoin Halving May Be Different
Despite all the build up, in light of recent events related to the coronavirus, a post-halving Bitcoin price rise is not a sure thing. As things stand, there’s not enough data to analyze and it could be a stretch to assume that the pattern of post-halving upward trajectories will definitely repeat itself. Moreover, the drop in the number of coins being distributed as a reward is something that has been known for many years, which has given traders ample time to act in anticipation. Because this isn’t Bitcoin’s first rodeo and the profile of the coin has grown substantially from where it was in 2016, some analysts consider this halving to be a “known known,” and therefore less likely to produce the kind of results we saw the last time around.
Another important factor to weigh in all this is the influx of institutional investors into the crypto space. This can be seen in particular on exchanges that support Bitcoin derivatives, such as OKEx, BitMEX and Huobi Global. To help these new market players strategize on a higher level, exchanges like HitBTC are offering them a special Financial Information Exchange protocol or FIX API, providing instant access to substantial market information and enabling to place orders securely. Thus, the opportunity to go short or long on Bitcoin has forced the crypto market to mature and made the process of price discovery more complicated, which overshadows any halving guarantees.
Moreover, the possibility that Bitcoin could take a bearish turn following the halving is also on the table. A downturn could be put in motion should the increase in mining difficulty trigger the capitulation of weak miners getting rid of their power contracts and expensive equipment after their potential profit is reduced in half. The transaction fees, the other benefit that goes to miners, may not suffice to keep operations going should block rewards dwindle down to zero. Additionally, a lower level of hashpower could endanger the security of the whole network.
Will the 2020 Halving Serve As a Driving Force?
Despite the uncertainty, Bitcoin’s recent strong performance and recovery from its March fall can be seen as a positive sign for the Bitcoin post-halving future. Things seem to be coming together in the right way for the world’s first cryptocurrency and for decentralized finance in general. With that said, we are living in strange times and there is really no saying how things will play out. We will all be waiting impatiently to see how this momentous event unfolds and how this young industry responds.