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Bitcoin halving: will crypto prices explode in 2020?

By Connor Freitas

There’s much chatter in the crypto community about the upcoming Bitcoin halving. But what is it, and what effect does it have on prices?

Get the calendar out, because one of the crypto world’s most exciting events is just around the corner. Every four years, a Bitcoin halving takes place, an extravaganza that seems to have an inflationary effect on the price of the industry’s biggest coin.

But how does the BTC halving work? What has happened to Bitcoin prices when this has happened before? And what will be the impact on BTC’s performance this time? This article will explain it all – and trust me, we don’t do things by halves.

What is Bitcoin halving?

To understand the significance of the Bitcoin halving, let’s remind ourselves about how this cryptocurrency is created.

Miners are responsible for verifying transactions on the blockchain, and they receive shiny new Bitcoins as a reward whenever a new block is created. But there’s a twist. The total supply of BTC is capped at 21 million – and there’s a pretty unusual system in place for distributing these freshly minted coins gradually.

Let’s rewind all the way back to 2009, when Bitcoin first roared to life. Back then, there was a reward of 50 BTC for every block that was mined. At today’s rates, that would see a miner get their hands on a whopping $522,000. Not bad for a day’s work.

Every 210,000 blocks, a Bitcoin halving takes place – reducing the reward for miners by yep, you guessed it, 50 per cent. There’s no exact timing for how long it takes, but as a rule of thumb, Bitcoin halving dates usually happen every four years or so. After the first Bitcoin halving in November 2012, block rewards tumbled to 25 BTC ($261,000 or so in today’s money).

The next came in July 2016, and this is the current reality for miners. If maths is your strong suit, you will have deduced that they can expect a block reward of 12.5 BTC, approximately $130,000. We’re now about three months away from the next BTC halving, when 6.25 BTC will be on offer for a successfully created block. That’s $65,000 – a healthy sum – but given how it’s getting harder and harder to receive these rewards, securing new coins is far from guaranteed.

When all is said and done, more than 18 million BTC has now been entered into circulation. This isn’t to say that they are all still active, however – hacks and lost private keys means a substantial number will never be recovered. There will be a Bitcoin halving regularly until every last BTC is mined, and forecasts suggest this will take about 120 years. Barely 3 million coins are yet to be discovered.

So… why is the Bitcoin halving 2020 so significant, then? Well, my friends, looking to the past can give us an indication about why crypto enthusiasts are so excited for the future.

Bitcoin halving history

Let’s dust off the history books (and the crystal ball) to find out the impact that each Bitcoin halving so far has had on the cryptocurrency’s price performance.

On each BTC halving we have seen so far, the coin’s value has gone up. However, it’s important to remember that this usually takes time. If you’re a first-time investor who is looking to dabble in crypto in 2020, you shouldn’t expect prices to skyrocket overnight – or even at all.

For an easy comparison, we’ll look at where this cryptocurrency was on the day rewards were cut, and how this compared with the price exactly one year later.

On 28 November 2012, BTC prices stood at about $12. Precisely 12 months on, they were close to $1,040. It would have been difficult for early adopters to know what lay ahead, but those who held onto their coins would have realised gains of 8,566 per cent. Such extraordinary, unpredictable gains could only be seen in the crypto world.

We fast forward now to 9 July 2016, the date of the second Bitcoin halving. Prices had cooled since 2013, and were floating about $650. Fast forward to the summer of 2017, and one Bitcoin would set you back $2,518 – an increase of 286 per cent.

Given these jaw-dropping figures, it’s perhaps unsurprising that excitement and momentum is growing ahead of the next Bitcoin halving, which is expected to happen sometime in the middle of May. But what are the pundits predicting this time round?

BTC halving predictions for 2020

Most crypto enthusiasts agree that the Bitcoin halving will accelerate prices from their current level of about $10,000. One thing they don’t agree on is the extent of this growth – and how long it will take.

PlanB, an analyst who has more than 66,000 followers on Twitter, recently tweeted to say that he believes BTC will stay above $8,200 in 2020 – and will be above $10,000 come May. He believes that a bull run is going to be around the corner next year – forecasting that the price of one Bitcoin will enter six figures for the first time.

https://twitter.com/100trillionUSD/status/1226918629213499392

Fundstrat’s Tom Lee has pointed to what he believes is a significant precursor for a Bitcoin rally. The cryptocurrency recently broke its 200-day moving average, and the analyst says that, when this has happened in the past, Bitcoin has typically clocked gains of about 190 per cent. That would theoretically take BTC to $27,000 by summer, based on where prices stood during the interview he gave to CNBC. Lee also confidently predicted that BTC will hit $40,000 before the Dow hits 40,000 points – we’ll just have to wait and see whether this forecast ends up having any weight.

Jemima Kelly of the Financial Times believes the buzz surrounding the Bitcoin halving is nothing short of nonsense. Crypto advocates say this event cuts supply as demand grows, but the columnist says this argument just doesn’t add up. She wrote: “There are more bitcoins to buy and sell today than there were yesterday, and there will be more bitcoins to buy and sell on May 13 than there were on May 12; it’s just that the rate at which new bitcoins are being pumped out will slow.”

They can’t all be right, and it’s worth remembering there are a lot of other factors that could influence Bitcoin’s price once “the halvening” begins. The market today is in a much different place to where it was in 2012 or 2016, and “predictable” is the last word that you’d use to describe the crypto markets.

FURTHER READING: Bitcoin halving: could it reach $170K per coin?

FURTHER READING: Anticipation grows ahead of Bitcoin halving

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