Bitcoin Halving - What Next?
Cryptocurrency investors have been getting ready for the much-anticipated halving of Bitcoin, which means that new Bitcoins being created will be cut in half. Prices rallied up to above US$ 9’000 per Bitcoin prior to the event. Now, as of May 11th, the price dropped to US$ 8’520 per Bitcoin. What to expect in the coming months?
What does the halving of Bitcoin mean?
The halving of a Bitcoin occurs when block rewards, or the number of Bitcoins issued into circulation whenever a block is “mined” or “produced” (approximately every 10 minutes), is cut in half. This in essence implies that, looking forward from the point of halving, Bitcoin will be issued half as fast as before. Or, expressed differently, it will become twice as hard and costly to mine it.
The event of halving is built into the source code of Bitcoin and is programmed to happen every 210,000 blocks. The logic and objective behind the programming is to increase scarcity and price over time.
When Bitcoin was launched, miners were rewarded 50 Bitcoins per block produced. In 2012, that reward was halved to 25 Bitcoins. In 2016 it was halved again to 12.5 Bitcoins. As of today, the halving will decrease the block reward to 6.25 coins per block. Market watchers expect this to add substantial value to the commodity in the coming months and years. Some have already speculated that the price would jump immediately. However, from past halving experience, it will take about 12 months before supply and demand principles really take effect.
The price of Bitcoin remains volatile, but…
During the general crash in financial markets in March. Bitcoin crashed as well, losing more than half of its value from the February high of US$ 10’367 to the bottom in March of slightly below US$5’000. Since then, Bitcoin has been highly sought and, getting closer to the halving event, it almost reached US$10’000. Right before the weekend, however, a lot of investors have taken profits, leading a setback. The price has rapidly fallen to US$ 8’790 as of this writing.
Bitcoin price in USD, over the past 6 months
Bitcoin halved on the 11th, largely a non-event, but it will be interesting to see what happens next. For the time being, Bitcoin remains highly volatile.
However, the currency is “growing up” in many ways, technologically, in terms of trust, and in terms of financial strategies offered to more effectively invest in Bitcoin. Several funds, for instance, now offer quant-models affording a long-short strategy of investing in Bitcoin.
At BFI, we are starting to pay more attention to Bitcoin and cryptocurrencies in general. 2020 will be an important year for Bitcoin.
First, it will be telling to see what kinds of financial products are introduced and how the use of Bitcoin evolves further as a trading currency, particularly amongst millennials.
Secondly, in the midst of the global economic crisis unfolding, it will be interesting to see whether Bitcoin in fact achieves a safe haven character comparable to gold. Bitcoin aficionados make the claim frequently that Bitcoin will become the gold insurance policy of the future.
The proof is in the pudding…