Some believe that the upcoming Bitcoin halving will trigger a rapid spike in price, and consequently, a boom in the crypto economy. How probable is this? And if so, is it the right time to buy?
With the halving 17 days away, it is paramount to get as much factual information on the subject before making any moves. For one, it’s not as simple as “Bitcoin supply goes down price should go up.”
Remember, the crypto community at large had already taken the Bitcoin halving into account months or even years prior to the upcoming event. If this was breaking news, then for sure the price of BTC will skyrocket.
But that’s not the case. Therefore, we should explore the various information we have so far.
What is the Bitcoin halving?
The Bitcoin network is a non-inflationary monetary system, in the sense that its supply is fixed. Only 21 million BTC will ever be generated in existence. For now, the supply is a little above 18 million.
Bitcoins are created through a process called mining, where miners solve a puzzle using specialized hardware. This process occurs roughly every ten minutes.
Once the puzzle is solved, new bitcoins enter circulation and are rewarded to the miners that solved the puzzle first. But the rewards are not fixed. Every 210,000 blocks mined, or approximately every four years, the Bitcoin rewards are cut in half.
Why is the halving important?
The main reason why the BTC halving matters is that it changes the emission rate of the currency, which directly alters the balance of supply and demand.
In other words, the amount of bitcoins entering the economy decreases while the demand, at least in theory, remains the same. Many believe that this sudden shrinkage in supply will push Bitcoin’s price higher.
However, many notable individuals don’t believe that this significant event is that cut-and-dried. There are several variables that need to be taken into account.
And as with anything in crypto that concerns price, heated debates and grand predictions are expected to collide.
So how will the halving affect BTC price? There are various aspects to consider.
Looking at past halvings
It goes without saying that this isn’t the first Bitcoin halving event. For this reason, a great indicator for predicting the next halving might be historical charts.
The previous halving of the Bitcoin network took place in July 2016.
As you can see from the chart, BTC maintained a flat line after the halving all throughout the year, hovering around the $600-$800 region. It wasn’t until January the following year that Bitcoin was able to break above the $1,000 mark.
And even then, Bitcoin had some minor drops before it rallied to $6,000, then subsequently peaked at nearly $20,000.
Going back further, the first halving occurred in November 2012. The price of BTC was around $12 then.
As you can see from above, Bitcoin held steady for about 11 months before its meteoric rise that peaked at $1,100 in November 2014.
As you can see, Bitcoin halvings never corresponded with an immediate upswing in price.
Based on the historic charts, we can deduce that Bitcoin has a high probability of reaching unprecedented heights about a year after every halving. In line with this, can we conclude that Bitcoin would rally again sometime in May 2021?
Not so fast.
Before 2016, the crypto space was very ‘underground’. There were only a few major marketplaces to buy or trade Bitcoin. This might have caused the slow uptrend of Bitcoin’s price, instead of limited demand.
All things considered, several analysts argue that any market data taken during those timeframes are not dependable.
From a miner’s point of view
Miners play an essential role in running the Bitcoin blockchain. As such, they are one of the most affected entities in the space. Why?
Bitcoin rewards are their lifeblood. And when you know your lifeblood is gonna be cut in half at a predetermined date, you’d most likely prepare for it.
Miners tend to sell a huge chunk of their Bitcoin months prior to the halving in order to have enough cash to keep their business going many months after the event.
This serves as a hedge in case Bitcoin does not pump right away. After all, if the rewards halve while the price remains the same, their revenue will suffer.
The main concern for miners is the breakeven price. Basically, a breakeven price is the price Bitcoin needs to maintain in order for miners to cover the costs of operation. Any lower and they’ll be losing money.
The estimated breakeven price for BTC after the 2020 halving would be around $12,000-$15,000, according to John Todaro, Tradeblock’s head of research.
If that were true, Bitcoin will need to double its April 2020 price for miners to run without losing money. Small mining facilities are the most vulnerable since they don’t have backup funds to stay afloat in case Bitcoin mining becomes unprofitable.
But then again, new upgrades in ASIC hardware might enable miners to generate more bitcoins at lower electricity costs, which could substantially drop the breakeven price.
Will the Coronavirus affect the halving?
The COVID-19 pandemic may be a black swan event since it takes the already complicated situation to a whole different level.
From what we can tell, it seems that the virus may have more of an impact on the supply chain of mining equipment than the actual price of Bitcoin itself. The pandemic has made it challenging to assemble and manufacture mining components, as well as distribute them across the world.
Despite having slight correlations with traditional markets like stocks and gold ETFs, it appears that Bitcoin has a mind of its own. It currently doesn’t have an inverse correlation with traditional markets, either. Although many Bitcoin proponents try to push that idea.
Bitcoin simply moves eerily as it always had. Whales and leverages traders might actually have more influence on its price than the virus itself.
Apparently, there is no clear view of what could happen after the halving. Several conflicting theories from industry participants would prove that there are too many variables to predict Bitcoin’s future.
And with the pandemic causing chaos everywhere, the future becomes even more unpredictable.
If history were to repeat itself, then we could see an upsurge in about 10-12 months. If the breakeven price for miners are your basis, then Bitcoin could skyrocket a lot quicker.
What we do know is that Bitcoin is here to stay, at least for a long while. And it’s going to continue moving, whether up or down. Your best course of action would be to prepare for the worst.