Something special will happen in less than ten days. Bitcoin halving! That’s a rare and important event that happens every four years, halving the inflation in the bitcoin economy. In the meantime, governments worldwide are injecting new regular money into the economy on a large scale due to the corona crisis. There is more and more regular money on the market, while the supply of new bitcoins is decreasing.
In about 10 days, the 630,000th bitcoin block will be mined. That is estimated to be around May 12 . From that moment the blocks that the miners find, will only contain half as many bitcoins as before. This mechanism is pre-programmed to take place every 210,000 blocks and only happened twice before, in 2012 and 2016. Currently, the block reward per block is still 12.5 BTC but after the upcoming halving that will decrease to 6.25 BTC per block.
Bitcoin halvings are much talked about as they decrease the inflation in the bitcoin economy more and more every time. Bitcoin mining is the only way how new bitcoins enter the market and the bitcoin market works just like any other market based on supply and demand. When the supply of new bitcoins on the market shrinks but the demand remains the same, it can have economic consequences and affect the price.
However, due to the corona crisis, there is still something going on. Governments worldwide are doing the opposite with regular money to fight the crisis: new money is being created on a large scale and pumped into the economy. This time the amount of new money injected in the economy is trillions.
So more and more regular money is coming onto the market, while the supply of new bitcoins on the market is constantly decreasing. This is one of the features that make bitcoin economically interesting and it is one reason why some bitcoiners believe that the bitcoin price will be higher in the future. Bitcoin halvings are therefore something to look forward to for many bitcoiners.
Bitcoin bulls preceding the halving
In the past, bitcoin halvings were also reasons for optimism, but the economic effects were not immediately noticeable. Bitcoin miners are only a small part of the total supply on the market, because most bitcoin trading is done with bitcoins that circulate longer.
At the moment, miners worldwide can mine 1800 BTC per day and that is approximately $16 million in new bitcoins, which is the maximum that miners can sell per day. However, the total daily bitcoin trading volume is several billions of dollars and the amount of freshly mined bitcoins is therefore only a small part of it. It is therefore unlikely that the economic effects of bitcoin halving will penetrate directly into the market. That will probably be a slower process.
Any price movements in the run-up, during or immediately after the halving are likely due to speculation. Those who expect to make a profit easily by playing on the news may therefore come home from a cold fair, because there may be many other speculators and if everyone is ready to sell immediately after the halving, the price could drop. Yet there is nothing to say with certainty and anything can happen. After all, economic conditions are completely different today and past results do not offer any guarantees for the future.
However, many analysts think that price will go above $10,000 before the halving. While the halving is an event that is expected to drive the bitcoin price up, it seems that the bulls are preceding this event and positioning themselves earlier. At the time of writing the bitcoin price is $8,944.
It remains exciting to see what will happen, but it may not hurt to be prepared for volatility. Whatever you do be careful and HODL on!
The graph below shows the price of bitcoin with the previous bitcoin halvings, highlighting one year before and one year after the halving.
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