‘Half’ is not really a popular term in the world of investment because it conjures up fears of investments losing half their value. However, Bitcoin halving is an entirely different affair. While there is no widespread consensus between cryptocurrency experts, evidence suggests that a Bitcoin halving actually leads to an increase in Bitcoin trade value.
To understand halving, you first have to understand how Bitcoin is produced. Anyone can generate Bitcoin but it requires a large investment of computing power and time. These two resources are used to ‘mine’ a blockchain.
A blockchain is a public digital ledger that verifies and validates the authenticity of each Bitcoin unit. Every transaction or trade performed with a Bitcoin adds to the original chain, extending it and making it more secure. This complexity is crucial to maintaining the integrity of the entire Blockchain ecosystem.
On average, massive computers using special software and working around the clock all over the world manage to create less than 150 new blockchains a day.
A miner who successfully creates a new blockchain is issued a token called a block reward. The value of the block reward is hard-coded into the underlying Bitcoin system. When Satoshi Nakamoto publicly launched Bitcoin in 2009, the block reward was set at 50 Bitcoin. However, this reward is halved after every 210,000 new blocks are created. That is why the event is called a halving.
The first halving occurred in 2012 and reduced the block reward to 25 Bitcoin. The subsequent halving in 2016 reduced the value to 12.5 Bitcoin. The upcoming halving will cut the reward to 6.25 Bitcoin. However, with Bitcoin cryptocurrency trading at over US$9,000 today, 6.25 coin is still quite a reward.
Halving influence on Bitcoin’s price
Nakamoto programmed Bitcoin to be limited to 21 million individual coins. This is completely different from traditional fiat currencies because federal monetary agencies have the power to print unlimited money. That creates the prospect of bringing additional cash into circulation and leads to inflation, which devalues the currency.
However, Bitcoin’s internal volume limit is a safeguard against long-term devaluation no matter how much you trade.
The scarcity factor foreshadows an increase in price until 2140 (when it is estimated the last Bitcoin will be minted). Halving contributes to this scarcity because it deters potential miners from investing too much effort in mining new coins due to diminishing returns. This decelerates the creation of new coins and reduces trade volatility.
Both previous halving events resulted in an increase in Bitcoin’s trade price. There are few factors to indicate that the trend will reverse this time around. In fact, it may even be possible that a general aversion for regular currencies due to the coronavirus pandemic may push more investors to Bitcoin, putting upward pressure on trade and value.
When is Bitcoin’s halving going to happen?
The Bitcoin protocol triggers halving events every time 210,000 new blocks have been produced. This is independent of Bitcoin’s trade volume and trade price. However, the time needed to create a new block varies due to the varying number of miners, technology and equipment.
Because of this, the system itself cannot set a specific date or time. Based on the rate of Bitcoin creation until now, though, experts predict that the next halving event will likely occur in mid-May 2020.
However, it is feasible that the rush to create new Bitcoin before the reduced rewards kick in could result in a date closer to the start of May.
Conclusion of halving process
There is no doubt that there is a sense of anticipation around May 2020’s Bitcoin halving. The crypto market expects this to be a time of value growth but there are no guarantees in trade during this period of suppressed economic activity. The fork could go either way.
Regardless, Bitcoin is currently considered a fairly reasonable investment target. If you are considering investing in Bitcoin, Fondex offers you the opportunity to trade options on credit. Our network even lets you manage specialized trading niches like securitization.
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