Every 210 000 blocks (approximately every four years), the miners’ reward for the mined block in the Bitcoin network is halved, and new coins begin to appear two times slower. This process of reward reduction is called Halving and will take place until the maximum volume of 21 million bitcoins has been generated by the net (according to preliminary estimates, it will happen in 2140).
The next bitcoin halving date is on May 21-24, 2020. Here is our view on what will happen with Bitcoin price after the next halving.
Bitcoin Halving 2020 Explained
Halving is embedded in the source code and performs several functions:
- Limits the coins issue, providing uniform issue. The lower the reward for every block, the longer the coins are mined. After halving the amount of mined bitcoins will decrease. Nowadays, 1800 are mined daily, and after May 2020, this number will be reduced to 900 BTC. Halving slows the production of new bitcoins and pushes the date of creation of the latter.
- Restrains crypto-inflation. The longer coins are mined, the more time it will take for all bitcoins to be engaged into circulation. Over time, new coins will become scarce. The slower new coins are mined, the lower is inflation.
- Contributes to the rise of the bitcoin price (deflation). Since the supply in the market is reduced, then demand and rate are rising.
- Maintains the miners’ interest because of commission fees increase, and impossibility to get all the coins at once.
Halving the reward by half affects the number of miners who receive bitcoins for mining bitcoin blocks. Historically it has had a positive impact on the price of the leading cryptocurrency in the long term. Halving is developed to prevent coin inflation. Unlike central banks, printing cash at their discretion, the number of bitcoins is limited. Thereby, cryptocurrency becomes more scarce and valuable and even becomes more like gold than a “freely printable” national fiat currency.
Previously, the reward per block was 50 bitcoins, and bitcoin price was less a dollar. However, the two previous halvings reduced the reward twice, and now it amounts to 12.5 bitcoins per block. In 2020, the award will drop to 6.25 bitcoins (about $80,000).
Each halving is a reminder that the reserves are running out. Every halving limits the number of new bitcoins being created, making existing coins more valuable.
Bitcoin Price Prediction After Halving in 2020
Previously Bitcoin halving price effect was the following. Before the previous Bitcoin halving, in 2016, there was a slow but steady increase in the bitcoin price for about a year.
After the first halving in 2012, Bitcoin reached a record high of $1,000 by November 2013. After the second halving in 2016, Bitcoin took off again and reached its record high of $20,089 on December 18, 2017. Then the price dropped. However, in February 2019, Bitcoin started to grow slowly as well as the number of its transactions.
In the stock market, a supply decline with demand remaining at the same level leads to higher prices. Bitcoin halving impact is almost the same: when the number of new coins is reduced by half and demand remains unchanged, so a deficit forms over time. It is logical that the Bitcoin exchange rate should then begin to rise.
According to crypto analyst Tone Vays, rewards’ halving will help Bitcoin to further consolidate its status as the king of cryptocurrency. Most likely, all attention from competing for high-bandwidth networks such as Bitcoin Cash and Litecoin will go to the leading cryptocurrency. In this case, the primary role of Bitcoin will not be a medium of exchange, but rather a repository of value.
Likely, Bitcoin will also be used as a genuinely secure and decentralized intermediary for mutual settlements. Alternative projects can never be as excellent a repository of value, and, over time, those will completely depreciate to Bitcoin.
There exist other opinions on this subject. For instance, a Twitter user nicknamed Expsycho thinks that reducing the reward for mining can cause the opposite effect since the crypto community has long been preparing for this event. In his opinion, about six months before the event, the price will be inflated, and afterward, Bitcoin will rapidly collapse.
A more significant part of the crypto community, having taken into consideration the previous Bitcoin exchange rate history, expects that the BTC halving in 2020 will bring about the next active bull market period. It will allow Bitcoin to hit new heights.
It is clear that in the past, many other factors influenced the Bitcoin exchange rate except the reward halving. However, the relationship between the rise in BTC price and pending halving is undeniable.
Depending on the situation, the ceiling price is expected to be reached a few months before the halving, as well as 16 months after the miners’ rewards, are reduced. After reaching a new maximum, the coin value may fall to its price before halving, and Bitcoin is likely to roll back to a bear market, losing up to 80% of its price. Although nothing guarantees that the same cycle will be repeated in 2020, most experts believe that it will.
The Bitcoin price behavior after halving usually rises. What if the situation changes before May 2020?
More and more new miners join the mining process, so its future profitability is being questioned. Thereby, there is a point in trying to attract investors to projects who can improve the mining process: developing new technology and equipment, creating new farms, etc.
There’s still the question about how the Bitcoin price will behave, and when, if it will rise. The critical point is the continuous growth of the Bitcoin demand, but it has to be noted that the real volume of Bitcoin sale and purchase is not so easy to track.
It is believed that the reward halving makes mining unprofitable and can make many people quit. Judging by the previous periods, it can be noticed that sooner or later after the halving, the following price increase will balance the market out, permitting miners to continue a profit-making, despite the halved reward.
Jason Williams, Morgan Creek Digital co-founder, shares the opinion that the forthcoming bitcoin halving will not affect the bitcoin price. “Bitcoin halving in May 2020 won’t do anything to the price. It will be a non-event.”