What is Bitcoin halving? Your guide to the biggest event in crypto
What is Bitcoin halving going to do to the cryptocurrency’s prices, and will it take BTC past its all-time highs? We take a look.
It’s one of the biggest events in the cryptocurrency calendar – and, much like the World Cup or the Olympics, it only happens once every four years. But what is the Bitcoin halving, and why does it generate so much excitement? Here, we’re going to explain why it’s so significant, when the next 0'>Bitcoin halving is, and how it could affect the performance of the world’s biggest cryptocurrency.
What does Bitcoin halving mean?
To understand the power of the Bitcoin halving, you need to look all the way back to Satoshi Nakamoto’s white paper for Bitcoin. The document made one thing crystal clear: only 21 million Bitcoins would ever be created. Strict rules were also imposed on how and when newly minted coins would be released, ensuring a fresh supply remains for decades to come.
So: here’s the Bitcoin halving explained. When 0'>BTC launched back in January 2009, it was built on the basis that miners would compete to verify transactions and add a new block to the chain. Miners who succeeded were rewarded with 50 BTC. At the time, this crypto would have been worth mere cents – but at today’s rates, this would fetch about $340,000 on an exchange.
It was decided that the 50 BTC reward would be only be in force for the first 210,000 blocks. After this, a Bitcoin halving would kick in – and the reward to be slashed to 25 BTC (this would still be worth $170,000 at the time of writing, not bad at all for a day’s work.) This process would then be repeated every 210,000 blocks. Given the fact that a new block is mined approximately every 10 minutes, this means there is roughly a four-year gap between Bitcoin halvings.
The way that the Bitcoin halving schedule is structured means that the vast majority of BTC is already in circulation. Take a look at this chart.
A whopping 10.5 million BTC was mined over its first four years of existence – that’s half its entire supply. But late November 2012 saw the first Bitcoin halving happen, slashing those rewards to 25 BTC per block.
You’ll notice that the rate of new 0'>Bitcoin entering the market slows substantially. Up until July 2016, only 5.25 million BTC are released – which, if you have your calculator handy, is what you’re get with when you multiply 210,000 blocks by 25 BTC.
Then another Bitcoin halving takes place, meaning miners get just 12.5 BTC per block. This is the current cycle we’re in now – the one that’s due to expire in May. In total, 2.625 million BTC will have entered the ecosystem over this time. If you look at the dotted line – which shows what’s going to happen between now and 2028 – the rate will continue slowing further and further.
When all is said and done, 18.38 million BTC will be out in the big, bad world by May. That means there’s just over 2.6 million out there left to find – under 15 per cent of the total supply. The drastic slowdown in mining rewards brought about by the Bitcoin halving means the final coins may only enter the market in 2140.
Bitcoin halving explained: The significance
Now you’ve seen the 0'>Bitcoin halving explained, you may be wondering what all the fuss is about. That’s because we haven’t even mentioned the most interesting bit yet: the inflationary effect that this event has on the cryptocurrency’s price.
After the Bitcoin halvings in both 2012 and 2016, there was a substantial rise in the coin’s value. It is worth noting that this increase didn’t happen overnight – but if you zoom out to 12 months after block rewards were slashed by 50 per cent, a trend starts to emerge.
November 2012 was very early on in Bitcoin’s life. Back then, you snap up one of these coins for just $12. By November 2013, their value had ballooned to $1,040 – a rise of 8,500 per cent. Few investments in history have offered such healthy annual returns.
It is worth noting that this spike didn’t last forever. Prices were back down to $650 when the next Bitcoin halving swung around in July 2016, but a year later, they had risen 286 per cent to hit highs of $2,518. There was plenty more drama to follow in the rest of 2017. According to CoinMarketCap, prices went on to reach an all-time high of $20,089 that December. Crunching the numbers, this is a 700 per cent increase in the space of under 18 months.
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Why does the Bitcoin halving increase prices?
You may be scratching your head at this point, and wondering why the Bitcoin halving appears to have such an inflationary effect on its value.
It seems the event led to an unprecedented spike in demand for the cryptocurrency. What’s more, there was a lot of activity in the market back in 2017, when billions of dollars of investment were making its way into start-ups – mainly in the form of initial coin offerings.
There is lively debate about whether the Bitcoin halving 2020 will be anywhere near as lucrative for investors as the previous events in 2012 and 2016.
This detailed analysis from Rekt Capital explored what would happen to Bitcoin if it followed the same patterns after the past two halvings.
From a starting point of $3,150 – the bear market’s bottom in December 2018 – it suggested that BTC could soar to anywhere between $385,000 and $425,000 once block rewards are reduced in May. This is based on how BTC previously behaved. However, it is important to suggest that this scenario is wildly optimistic, and that Bitcoin halving history may not accurately indicate what lies ahead.
Given that this analysis was published late last year, it’s possible that recent market trends have made such a runaway performance even more unlikely. We’ve seen an exceedingly close correlation between Bitcoin and the equity markets of late, so it’s possible that the ongoing economic uncertainty caused by the coronavirus could derail hopes of a parabolic bull run and suppress the impact of the Bitcoin halving.
On the other hand, there are some small signs that excitement is growing. A recent poll by Genesis Mining revealed that over 50 per cent of miners believe BTC prices will increase in the six months after the halving. About 30 per cent think prices will fall, while roughly 15 per cent predict there will be no significant change. More conservative estimates have been suggesting that BTC might be able to surpass the all-time highs that were set almost two-and-a-half years ago.
Investor interest also appears to be surging ahead of May. Google searches for the phrase “Bitcoin halving” have skyrocketed since the start of April. It’s also intriguing to find out which regions are contributing most to this boost in search traffic. Estonia, St Helena, Cyprus, the Netherlands and Switzerland are in the top five – followed by Slovenia, Austria, Czechia, Singapore and Puerto Rico.
It’s difficult to know precisely when the Bitcoin halving milestone is going to be reached in May, but there are now well under 10,000 blocks to go. There are countless predictions out there, but only time will tell whether 0'>BTC can pull off a hat trick and experience astronomical growth for the third time in a row. Although the market has matured considerably since 2016, it remains just as volatile.
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