Bitcoin’s long-awaited quadrennial momentum, Bitcoin halving, is just around the corner. CoinGecko share on their website that the estimated date will be on 12 May 2020, while Binance predict that the event will be scheduled on 18 May 2020; or roughly two months from now. Due to the Coronavirus and other reasons, this year Bitcoin halving, or commonly also referred to as block halving and Bitcoin halvening, has become a hot topic for Bitcoin experts and traders. To find out more about what is Bitcoin halving and how Bitcoin halving affects Bitcoin, we summarize everything you need to know about Bitcoin halving as follows.
Bitcoin halving is a reduction of mining incentive by 50% that occurs after every 210,000 blocks, or approximately every four years, until the limit is reached (21 million Bitcoins). What makes it significant for the Bitcoin community is that as the supply of new Bitcoin is tightened, the price might skyrocket if the demand grows.
In the current situation, there are some arguments on whether mining is worth it. Compared to the early days of cryptocurrency, there are a lot more miners now, which means more competition. Bigger miners still benefit from mining, however at the same time must spend a huge amount of capital on hardware, electricity cost, cooling systems, etc. It is doubtful that small businesses will survive after the next halving.
As the incentive halved every 210,000 blocks, ultimately there will be nothing left to give to the miners. This is scheduled to happen by 2140. At that point, mining will not be profitable anymore.
The idea of Bitcoin as a decentralized digital currency has slowly shifted to a more centralized platform because miners choose to concentrate in large mining pools. Miners see mining pools as the solution for faster and cheaper mining, however this leads to the domination of big mining pools. On the other hand, individual miners are priced out of the market as mining becomes more unaffordable and the reward does not compensate. Many people believe that the next Bitcoin halving will cause further mining centralization, as miners will obtain 50% less of the already low incentive.
Based on Blockchain.com, here is the current hashrate distribution among the largest mining pools worldwide.
According to the last two events, Bitcoin halving has a negative yet temporary effect on the network hashrate. The impact on the profitability is even more serious, as shown below based on BitInfoCarts.
Since its launch on 3 January 2009, Bitcoin has encountered two halvings. The first halving happened in the end of year 2012, where the reward was halved from 50 to 25 new Bitcoin. Currently, the reward is 12.5 Bitcoin, effective since 2016 when the block numbers got to 420,000. After the next round, the miners will receive 6.25 Bitcoin. Here are the details according to Rekt Capital.
- Around one year before the first halving, the price started to recover from a correction in the end of 2011.
- The price increased gradually from $2.01 to roughly $11.5.
- A rapid surge in price could be seen after the halving. Five months afterwards, the value of Bitcoin hiked up to $270.94. In total, the price increased over 13,000%.
- The market became bearish for 87 days after reaching the peak, with an 80% downturn.
- This time, Bitcoin went to rally for 1068 days or more than two times longer than the first one.
- The starting price was $164.01.
- The price skyrocketed 12,000% to $20,074 in the late 2017. This was Bitcoin’s all-time high.
- A bear market was seen for 51 weeks, dragging the price to almost $4,000.
These halving events demonstrated a similar pattern: Following the halving, Bitcoin’s price rose steeply 12,000% - 13,000%, then dropped for a few weeks, then remained stable.
Global epidemic add complexity to the upcoming Bitcoin halving. Speculations on whether Bitcoin price will surge rapidly following the halving divide cryptocurrency community into two big groups.
They believe that this year’s halving will have the same bullish market trend, just like the first and second halvings. One of the most popular opinions came from the Co-Founder and Partner of Morgan Creek Digital, Jason A. Williams.
CoinDesk’s Director of Research Noelle Acheson shared her view last year, saying that she was unconvinced that the price will hike up because Bitcoin halving is already priced-in (in early 2019) and Bitcoin has completely different infrastructure now.
In addition, she also stated in Unconfirmed podcast with Crypto Journalist Laura Shin that the halving will highlight Bitcoin and drive people’s attention to try an alternative investment when the global economy is impacted by Coronavirus.
“Now what does the halving have to do with Coronavirus? Absolutely nothing. But what the halving will do, especially because of the media attention that will be thrown on this, (…) is to highlight how different this is and the innovation behind this technology. And every halving does bring mainstream attention and interest at time that things are really weird anyway, (…) people are probably thinking “Oh okay, things are different. Maybe I should open my scope and my mind and look at other alternatives when it comes to investment assets, paying mechanisms, and economic systems”.
At the time of writing, 16 March 2020 at 10.24 UTC, Alternativeme shows that the Fear & Greed Index is still highly negative, predicting that the market will remain bearish in the foreseeable future.
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