The halving of the bitcoin network is an event that every time arouses extreme emotions. Speculators are rubbing their hands in anticipation of the next bull market, while miners are taking their calculators in hand and wondering if it still makes sense to launch their brand new Antminers. What exactly is halving?
Halving in practice and its impact on the Bitcoin price
On average, every four years we witness a phenomenon that demonstrates the power of decentralization and autonomy of cryptocurrencies. It is the halving, process of reducing BTC issuance by exactly half. The Bitcoin blockchain performs halving completely automatically, according to the specification of the network, every 210,000 blocks. The third halving took place on May 11, 2020, and reduced the reward for solving one block to 6.25 BTC from the previous 12.5 BTC. Reducing BTC mining by half significantly reduces Bitcoin’s inflation (which is currently around 1.8% per year).
It also affects the price of BTC, as the supply of BTC decreases in the market and miners (especially the smaller ones) are often on the verge of profitability. Those who can afford it start accumulating BTC and try to weather the temporary drop in profitability, hoping for big increases once the post-halving dust settles.
This whole situation also attracts a whole lot of speculators, who remember how the Bitcoin exchange rate behaved during the two previous halvings, where BTC within a year after the reduction of the issue started a crazy bull run and recorded increases in its value in dollars by 8300% and 300% respectively.
However, if we consider the fact that the cryptocurrency market is starting to become more mature, the above increases already seem less and less likely, although John McAfee’s promise of bitcoin worth $1 million apiece by the end of 2020 is very tempting.
Bitcoin’s halving history
During the previous two halving events, the market was rather optimistic, with investors eagerly anticipating the timing of the BTC mining cut. After the first halving, bitcoin’s price shot up almost immediately, thus becoming a mine of memes (led by a smiling BTC coin speeding upwards in a red rollercoaster car).
The value of BTC then rose from $12 to nearly $1,000 in just one year. This is a unique phenomenon not seen in other markets. Not counting the artificial pumps provoked by dishonest speculators on so-called shitcoins, only Bitcoin’s biggest competitor – Ethereum – managed to achieve a similar result, although the truth is that the main driving force behind ETH was the second halving of BTC. Bitcoin itself then also gained heavily in value. After the mild hiccup caused by the halving, the BTC price quickly began to climb, recording a gain of over $1,800 in a single year.
When, in December 2017, even sceptics began to get used to the idea that these increases could no longer be stopped by anything, suddenly the cryptocurrency engines ran out of fuel, and crypto instead of the moon, it fell to the ground with a bang and a gigantic bear market began.