This second week of May, Bitcoin will halve it’s block rewards again. The last two times it happened, the crypto reached an all-time high. What will we see this year?
Mind that experts can’t exactly explain what causes these price spikes. Although it depends mostly on Bitcoin demand, halving is a big part of it.
Thankfully, we’ve been able to see many patterns since the Bitcoin came up in 2009. You may be familiar with this chart.
The question is: are we upon the beginning of a new bullish market?
Could Bitcoin Halving Lead To The Next All-Time High?
Remember, crypto markets are volatile. Too many factors come into play and make predictions inaccurate. But to make the explanation simpler, we’ll assume the demand remains the same.
What is this halving, and how does it affect the price? The answer is Bitcoin mining.
By definition, Bitcoin is decentralized thanks to blockchain technology. When two people trade crypto, a Bitcoin miner has to verify the transaction. Because it’s anonymous, the network uses algorithms to validate these transaction “blocks.”
At first, miners got 50 BTC per block verified. As the crypto-coin become more valuable, others invested in computers to mine faster.
No, inflation isn’t a problem. Another feature of Bitcoin is the 21 million cap, so it doesn’t devaluate over time.
Here’s the problem we need to think: those who came first will invest in technology and mine faster. Imagine there are 18M blocks mined (like today in March 2020). Those who got in late will never earn as much as those who came first.
How do you motivate miners to keep verifying transactions?
Why Bitcoin Halving Could Up Prices
Although Bitcoin has become quite popular, there’s still a lot of expansion left. Many people are just getting into crypto, so we can assume the demand will grow over time.
Here’s the secret problem with Bitcoin: people don’t really know what will happen after we hit the 21M cap. How do you keep rewarding miners? Did we mention we’ve already mined over 18 million?
Don’t worry, the Bitcoin creator has thought of that. Every 210,000 blocks verified, Bitcoin halves the block reward. A miner that earned 50 BTC in 2009 would make 25 BTC in 2012 for the same work, then 12.5 in 2016, even less than 6.7 BTC from May 2020.
Given the current technology, we mine one block every ten minutes, which is worth 12.5 BTC. It adds up over 4,000 blocks per month, around 210,000 every four years.
A miner has to work twice as fast for the same reward. So it becomes exponentially harder to mine Bitcoin. Experts believe they could get the last crypto-coin in 2140.
Could It Happen Faster Than Expected?
This delay doesn’t solve the miner’s problem. But it keeps it far enough to think of better solutions. For example, miners may get paid with the trading transactions we pay.
We will hit the 21M cap in 2140, assuming technology remains the same. Remember Moore’s Law?
“The number of transistors on a microchip doubles every two years.”
Technology also evolves exponentially. We may not be that far from that last Bitcoin to mine.
How To Profit From Bitcoin Halving In 2020
Markets follow one rule only: offer and demand. The best investing strategy is looking for high demand and low offer.
Let’s assume Bitcoin continues to expand. If we see a Bitcoin halving, the offer will reduce. Bitcoin mining becomes twice as hard,
and prices go up. That’s what we’ve seen in the last two halvings.
Prices also fall two years after the halving. Probably related to Moore’s Law. Companies upgrade their technology, double their computer power, and get back to the same offers.
Notice that, although it stabilizes, the network becomes more centralized. Every time it halves, you need to invest more in technology. In 2011, anyone with a laptop could be a miner. Today, only ASIC companies can do it effectively.
The good news? Prices stabilize and the network secures. Before the first halving, hacking attacks where common. Today, you need ridiculous computer power.
More buyers + Less Bitcoins = Higher Prices
After a halving, Bitcoin reaches an all-time high, goes down a bit, then reaches a second all-time-high before the next halving. If it happened twice, why couldn’t it happen this time?
The last halving happened in 2016. You saw what happened in 2018. Others expect this new record to be around $250,000, but there’s nothing certain for 2020.