Let’s take a closer look at the 2020 bitcoin halving
The global supply of bitcoin was drastically squeezed earlier this month following a ‘halving’ event that has significantly restricted the number of new coins in circulation. Halving is a mechanism that is built into the very core of bitcoin and is designed the literally half the BTC reward that is dispensed whenever a block is mined.
Every time 210,000 blocks are mined, the amount of bitcoins dispensed is halved for each subsequent block. Such an event happens roughly once every four years, with the previous two halvings taking place in 2012 and 2016.
Such events will continue to happen until the maximum supply of 21 million coins has been mined by the bitcoin network. This latest halving, the third in the history of bitcoin, has reduced the bitcoin ‘reward’ for each block from 12.5 to 6.25 bitcoins.
This means that the rate of increase of new bitcoins will slow considerably, potentially pushing up demand as a result of increased scarcity. Of course, that’s not a given, as this year’s result is already showing. Let’s take a closer look at the 2020 bitcoin halving and explore what this means for traders in the weeks and months ahead.
The 2020 Bitcoin Halving: Early Results
The defining market feature of the runup to the 12 May halving was volatility. In the days just before the halving, the price of bitcoin rocketed past $10,000, likely the result of miners and traders attempting to get their hands on as much coin before they became harder to obtain, before promptly crashing again to below $8000.
Since then, things are looking more stable. Since the halving commented, the price of bitcoin has risen modestly, with a few drops in between, but is holding steady at over $9000. This rise has been compounded by several factors.
For one, investors have been withdrawing bitcoin from major exchanges en masse, with more than 24000 coins taken out of exchanges in the past few days. This has served to intensify the scarcity effect at a time of heightened demand.
In addition, the greatly increased media attention that typically accompanies a bitcoin halving has helped to spark demand and allow BTC to appreciate. It’s worth noting that the market for bitcoin, despite stabilizing somewhat, remains highly volatile compared to usual, something that has been predicted to continue for weeks.
A look at the price of bitcoin right now reveals something of a zig-zag pattern – something which hasn’t been seen since the aftermath of the great bitcoin boom of 2017. It is too early to tell whether the long-term effect will be a bitcoin bear market or a bitcoin bull market, but it’s worth noting that a number of cryptocurrency experts have predicted that BTC will go on to surpass its all-time-high values this year as a result of the halving.
What Does the Future Hold?
For bitcoin traders and investors, the current market is likely to be provoking some feelings of unease. It’s already clear that we are not going to see a BTC rally on the same scale as the one that followed the halving of 2016, which eventually pushed bitcoin up to $20,000.
What’s more, others are actually warning that the current halving could actually push the price down over the long-term, due to miners, investors, and traders losing interest as the cost of securing new coins becomes prohibitively high (note that bitcoin mining is already one of the most energy-intensive processes in the world).
The fact that many crypto exchanges have already imposed massive hikes on their transaction fees would certainly suggest that the market is slowing. However, one needs to look at the bigger picture. It’s no secret that bitcoin has held up better than almost any other major asset throughout the current economic downturn, with its price already at its pre-crisis peak.
What’s more, the last two halving events have resulted in a long-term trend of strong appreciation, and there is little reason to believe that this time around will be dramatically different. Granted, the market for crypto has matured dramatically since 2016 and is generally much less volatile.
For traders and investors, the best course of action is likely to wait out the next few weeks, which are likely to see further dizzying peaks and troughs. Of course, brave traders might be able to take advantage of the current unpredictability. Once the current volatility has passed, it might be a good time to buy in anticipation of a long-term appreciation.
Right now is a particularly exciting time to be trading bitcoin. Halving doesn’t happen very often, and it’s likely that future developments will very much be worth watching.