The course for the future of the digital currency Bitcoin will be readjusted in May, because then a so-called halving will take place again. In the past, this event has twice led to strong price gains.
• Number of Bitcoin increases more slowly after halving
• The previous Halvings was followed by a months-long bull market
• Experts disagree about upcoming halving effect
An important date is on the calendar for Bitcoin investors this year: the next Bitcoin halving is expected to take place in May. However, to understand why this is an important event that has the potential to affect the Bitcoin price in the long term, one must first understand how the Bitcoin cryptocurrency works and how new Bitcoins are generated.
This is how new bitcoins come into circulation
Bitcoin is a digital currency whose individual monetary units, the bitcoins, are generated by computers performing special arithmetic tasks on a blockchain. This computationally intensive process creates new data blocks that are needed in the Bitcoin network to record all transactions with the cyber currency. As a reward, the so-called “miners” or “miners”, who provide the computing power of their computers, receive a fixed amount of newly generated bitcoins for each block they generate. The entire process is also referred to as “bitcoin mining” or “bitcoin mining”.
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Bitcoin halving is causing supply shortages
In order to avoid inflation and to achieve an increase in the value of the cryptocurrency, the Bitcoin code stipulates that there can only be a total of 21 million bitcoins – around 18 million of these have already been generated. So that the specified maximum amount of bitcoins is not exceeded, the halving mechanism was also stored in the code. This ensures that every time after 210,000 blocks generated in the Bitcoin network, the reward for generating more blocks is halved. The miners then receive fewer bitcoins for their work, the total amount of available bitcoins increases more slowly.
As already mentioned, such a bitcoin halving takes place every 210,000 blocks or approximately every four years. In the past, there were already two halves: on November 28, 2012, the reward for generating a new block fell from 50 to 25 bitcoins; on July 9, 2016, it was halved again to 12.5 coins. At the next halving event, which is expected to take place in May this year, the block reward will then be reduced to 6.25 bitcoins. An exact date for the important event cannot yet be predicted, since it is not yet entirely possible to predict when exactly the required number of blocks will be generated. Incidentally, there will be a total of 32 Bitcoin Halvings, the last one will probably only take place between the years 2130 and 2140.
This is how the Bitcoin price reacted to the previous Halvings
Halving is an important date for Bitcoin investors as it can have a strong impact on the Bitcoin price. Halving the block reward means that the total amount of available bitcoins no longer increases as quickly as before. The supply is growing more slowly, while the demand may remain constant or even increase due to the increasing popularity of the digital currency. In this case, the Bitcoin rate would benefit.
At the past halving events in 2012 and 2016, the same pattern emerged as the Stuttgart Stock Exchange explains in a YouTube video: Halving led to a relative sideways movement for bitcoin, followed shortly after the halving a very significant price increase over several months, each adding up to more than 1,000 percent.
This is what experts expect from the halving event in May
A shortage of supply is usually viewed positively by the financial markets, as has also been shown in the case of bitcoin in the past two halvings. Still, experts disagree on how the impending halving of the block reward will affect the price of the most popular digital currency. The general conditions have changed compared to 2016, since the cryptocurrency has now become more mainstream and, according to a CoinShares analyst, trading in Bitcoin derivatives in particular has a significant impact on the price. There is also the question of whether a possible halving effect has already been priced in, since the upcoming event is known and may have already prompted many investors to invest in Bitcoin in the hope of price gains. In the past twelve months, the value of bitcoin has already increased by around 130 percent, the increase since the beginning of the year has been a good 20 percent.
If you believe crypto bull Tom Lee from Fundstrat Global Advisors, then Bitcoin still has significant upside potential this year. In a crypto outlook for 2020, Lee announced in January that Bitcoin could be “very likely” to rise more than 100 percent this year. According to Lee, bitcoin halving will be one of the reasons for this sharp rise, since he believes that the major event has not yet been priced in. In February, Lee raised his forecast again due to technical chart signals and now believes Bitcoin can gain almost 200 percent this year.
Changpeng Zhao, CEO of the crypto exchange Binance, also does not believe that the halving is already priced in. In an interview with “BlockTV” in mid-February, he said that a positive effect is yet to come as the “demand side” grows while the supply side [durch das Halving] shrinks “. Apparently, the US company Weiss Crypto Ratings is similar. Weiss raised its rating for Bitcoin to” A- (excellent) “in February and also names the upcoming bitcoin halving as a reason. The fundamental data of Cryptocurrency has improved and positive price movements can also be seen in the run-up to the halving, according to a Twitter post by the rating agency.
Editorial office finanzen.ch
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