What is halving
Being a decentralized digital currency, Bitcoin is not controlled by any central bank or authority and the security of its network is ensured by miners.
Unlike fiat currencies, the Bitcoin was designed with a fixed maximum supply and predictable inflation schedule. New bitcoins are produced and enter the circulation, as block rewards for Miners. Its production decreases over time according to a specific formula, defined in the Bitcoin whitepaper released by Satoshi Nakamoto. The term “halving”, refers to the reduction of the block rewards, in half.
Below can be found a piece of the code that results in the Bitcoin halving.
CAmount GetBlockSubsidy(int nHeight, const Consensus::Params& consensusParams)
int halvings = nHeight / consensusParams.nSubsidyHalvingInterval;
// Force block reward to zero when right shift is undefined.
if (halvings >= 64)
CAmount nSubsidy = 50 * COIN;
// Subsidy is cut in half every 210,000 blocks which will occur approximately every 4 years.
nSubsidy >>= halvings;
Such a halving event, as emerges from the code, takes place every 210,000 blocks or approximately every four years. Currently, 144 blocks are mined each day on average, resulting in 1,800 newly generated bitcoins entering the circulation every 24 hours. Bitcoin emission will stop when 21 million coins will have been mined and it’s estimated in 2140.
But is the halving event somehow affecting the price action of Bitcoin?
What to expect in halving 2020
Historically, the halving event has triggered enormous growth in Bitcoin’s price, which extended in the whole cryptocurrency market.
In the early days of bitcoin, back in 2009, miners were rewarded with 50 coins per block. On November 28, 2012, the first halving took place. The reward for miners reduced to 25 coins per block, and the price action the following year had a maximum increase of 10,000% from 11$ to 1100$. The second halving was on July 09, 2016, in which the reward for miners decreased to the current level of 12.5 coins per block mined in the blockchain. The price action following the second halving was very bullish as well and in the next 1.5 years, bitcoin went from 600$ all the way up to its all-time high at 20,000$, an increase of 3,333%.
Practically, the halving event describes the decrease in the inflation rate, scheduled every four years. The previous, as well as the current inflation rate of Bitcoin along with the increasing price over the years, shows that Bitcoin is in really high demand. With simple words, people want to buy more Bitcoins than what is generated. Therefore a quick conclusion would be that if you reduce bitcoin production in half (inflation rate after halving 2020 will go down to 1.8% which is similar to gold), but you don’t change anything in the demand, then the price will go drastically higher as it did on previous halvings.
The above are the reasons why the halving event is so much anticipated around the crypto community. According to google trends, this year’s searches about the coming event are 16% higher than in 2016 when the previous halving event occurred. The last expresses an increased interest and might be an exponential growth indicator.
As emerges from the above statements, the halving event should indeed drive prices higher!
There are some more facts to consider though.
Price gains don’t only occur after the event, but also before. It is believed that the recent price action of Bitcoin in 2020 is already affected by the forthcoming halving event in May. In general, it’s logical that the predictability of such an event like the halving would give investors the time confidence to move accordingly even before it takes place.
FOMO (Fear Of Missing Out) is usually taking control over the price action slightly before the event occurs. The FOMO driven moves can push prices higher very quickly and can cause big gains but they leave the market vulnerable to an equally big correction, so it can be risky to enter the wrong time for the wrong reasons at least in the short term. We witnessed that in the previous BTC halving and in other coin halvings as well. When such a correction starts, less experienced traders are abandoning their positions massively out of panic making it even worse. Many of them do not even reenter so they miss the opportunity of long term gains that halving events imply.
Bear in mind that the price action is not only controlled by supply (which will decrease due to the halving) but also demand. With the world in a crisis with an unknown end, as traditional markets, the crypto field (which still shows noticeable correlation signs in extreme movements) is equally unpredictable. There are currently many other factors that could drastically affect demand and therefore prices, at least in the short term and until the world’s functionality starts to restore.
Halving’s impact on price is a long term process. The decreased supply due to the halving, along with the demand, will keep adding up to the coin value many months after the event. On previous halvings, the highs defining the most profitable exit points took about 1 to 1.5 years to form.
Successful investing is associated with a deep understanding of the multiple factors that have an impact on prices but also their timespan because timing entry and exit positions correctly is of huge importance. In events like the halving, especially the BTC halving 2020, attention but also patience, are strongly recommended. Hopefully, the above insights will make you avoid mistakes out of enthusiasm or panic and help you increase your profits in 2020….or 2021!
Bitcoin halving timer
To have a precise countdown estimation about the coming halving event, we do not simply use the average block time at 10 min. Instead, we gather live blockchain statistics on the current block time and readjust our timer in accordance with that. The fluctuation that may be noticed in the timer, represents the fluctuation in the last recorded block time. The above method results in a more accurate countdown.
*The thoughts and opinions expressed do not represent a financial advice. Please exchange at your own risk.