Only one more month, Bitcoin's 4-year judgment day will come. The event has caused a fever of the cryptocurrency market community during the past time - Bitcoin Halving 2020.
Will Bitcoin increase in price after this Halving event? Or is this just an excuse for the FOMO community?
In this article, I will go with you to find out about the probabilities of Bitcoin after this Halving event!
OK, got it Let's get started!
Bitcoin Halving is an event that halves block rewards that take place every four years of Bitcoin.
During its lifetime, Bitcoin will have a total of 32 Halving after every 21 thousand blocks were created.
And so far, Bitcoin has gone through Halving twice in 2012 & 2016. And Bitcoin will officially go to Halving for the third time near the end of May 2020.
Maybe you are interested in: What is Bitcoin (BTC)? A comprehensive guide on Bitcoin investment for beginners
Why is Bitcoin Halving important?
Although Bitcoin creator Satoshi Nakamoto never revealed any information about the purpose of Bitcoin Halving.
According to Coin98:
Halving is responsible for adjusting Bitcoin's monetary inflation rate by reducing miners' block rewards.
Since then, the guarantee of "network security" will have to be switched based on "transaction fees" instead of "block rewards" as it is now.
Why this shift is good, I will explain below:
Bitcoin has a fixed supply (21 million BTC), cannot be printed further with pre-defined inflation. Bitcoin's original annual inflation rate of 12.5%.
After each Halving, Bitcoin will halve the block reward. This led to a decrease in the supply of the market, leading to a year-on-year decline in Bitcoin's inflation rate to 0 after 32 halving.
When inflation falls very low, lower than USD inflation, Bitcoin will gradually become a store of value instead of current currencies.
The main component doing this task is the Miners (miners). But it was this component that was most affected when Halving happened.
Because a reduction of khối of the block reward means a reduction in profits ½. This led to a drop in miners in the Bitcoin network shortly after Halving happened.
This will help purify the mining market, when individuals and organizations have insufficient resources and vision will leave the game on its own. Instead, it is a new generation of miners with a longer-term perspective on Bitcoin.
Because of the benefits of validation, network security will gradually be based on transaction fees throughout the network.
That means that Bitcoin must be used worldwide.
Bitcoin Halving History
By May 2020, Bitcoin will undergo a 3rd Halving of its 32 Halving sessions.
Before it happens, you will review the history twice with Halving together. See what information will be able to repeat this time or not!
First Bitcoin Halving
The first Halving event of Bitcoin took place and in November 2012 at block 210,000. Block rewards reduced from 50BTC to 25BTC for each block mined.
Data from the first Halving show:
Bitcoin price surged
The price chart above shows that Bitcoin started bull market (strong growth) before the Halving event a year (November 2011) and lasted until after Halving a year in November 2013.
With a horrific growth of + 50,162%, from a value of $ 2.29, Bitcoin reached $ 1,114 at the beginning of December 2013.
Shortly thereafter, Bitcoin went into a downtrend with a value reduction of 80% exactly one year later.
Two weeks after Halving, Bitcoin's hashrate dropped sharply by ~ 37.86% from 29,145T to 18.11T.
This shows that the amount of miners has decreased quite a lot after halving occurred.
Mining profits plummeted
Shortly after Halving took place, the Bitcoin mining profit immediately decreased by more than 60% and it took two months to recover to the original level.
2nd Bitcoin Halving
The second Bitcoin Halving event took place in July 2016 at block 420,000 after nearly 3.6 years.
During this time, the emergence of specialized ASIC miners pushed Bitcoin mining process up to 150 days faster.
The second halving will reduce block rewards from 25BTC to 12.5BTC for each mined block.
The second Halving figure shows:
Bitcoin price surged
The chart above shows that Bitcoin price entered the bull market 9 months before the Halving event until the year after Halving.
The earlier bull market can be affected by the time Bitcoin Halving 150 days earlier than the first.
At the end of the bull market, the price of Bitcoin surged 9000% from $ 213 to $ 19,500. After that, Bitcoin went into a downtrend, causing the value to fall by 80% from the peak.
After Halving, Bitcoin's hashrate has only decreased slightly this time around as if nothing has happened.
This proves that the number of miners participating in the network has expanded quite large and still believes to exploit Bitcoin.
Decreased mining profits
Bitcoin mining profits fell ~ 51.2% after Halving took place and it took nearly 10 months for this profit to recover.
Bitcoin Halving 2020
As expected, Bitcoin will halving for the third time in May 2020 and cut the block reward from 12.5BTC to 6.25BTC for each block.
This is the event that the community of cryptocurrency investors eagerly awaits and is considered a hit to the Bitcoin price rise again.
However, will Bitcoin Halving 2020 cause Bitcoin to rise?
You refer to the factors below to make your own judgment.
History of price increases
As you can also see, Halving twice before Bitcoin's price consistently hit a record high, breaking the peak just a year after Halving happened.
However, a year may be too long in this cryptocurrency world. So my brothers and I look at Bitcoin's price movements before and after three months from Halving.
Coin98 Research data shows two halving in advance, if you buy before 90 days and as soon as Halving will hold the price increase ticket.
However, this third doesn't seem to be going well, as 90 days ago Halving was right at the top of Bitcoin's $ 10,300.
Currently, Bitcoin has 30 more days before going to Halving. Do you think Bitcoin will surpass $ 10,000 before Halving?
Stock - to - Flow
Stock to flow is the ratio that quantifies the scarcity of an asset. It is measured by dividing the total supply of circulating assets (stock) by the amount of annual production (flow).
Bitcoin is considered a "Digital Gold" digital with increasing scarcity after each Halving.
You can probably expect Bitcoin's SF to reach 55.94 and be asymptotic to gold after this third halving.
But, does the SF scarcity index lead to a sharp increase in Bitcoin's price as gold has been doing for thousands of years?
Contrary comments: Recently, JOE007 a Bitcoin whale has stated that the SF pricing model is meaningless.
He said that the statistical probability is only correct when there is not any change from external influences. But if so, what?
Do you think it is still true to predict Bitcoin price based on SF index?
The amount of whales increased sharply
In the latest report, Glassnode, an on-chain data analytics unit, has shown that the number of whales holding Bitcoin is rising sharply.
The chart shows, the number of Bitcoin whales tends to increase sharply (~ 17.65%) before six months when Halving takes place in 2016.
Immediately after Halving took place, the profit taking took place, resulting in a sharp drop in the whales.
Back to the present, from the beginning of the year until now the amount of whales has tended to increase. And especially after March 12 when Bitcoin had its dark day with a ~ 39% discount within a day.
This period is very similar to the previous Halving period. Do you think, this is a good sign before Halving?
Economic crisis 2020
This third Halving time is different from the previous two times because of the approaching appearance of the economic crisis approaching.
Bitcoin was born after the 2008 recession and it hasn't really experienced a crisis yet.
During the crisis, all financial industries dropped significantly and Bitcoin was no exception.
The chart below shows that the Bitcoin price (yellow line) is moving quite close to the SP & 500 stock index (blue line) in the last drop.
Hopefully, through this article, you will have a better overview of the upcoming Bitcoin Halving. Based on the data of the past and the present situation, you are able to make the right decision for yourself.
If you have thoughts and opinions on this matter, you can comment below the article. I and the Coin98 team will discuss more with you.
If you have any questions, join the discussion at Coin98 Finance!
Hello and see you again in the upcoming article.