What to Expect When You’re Expecting… the Bitcoin Block Halving

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After two previous halvings, Bitcoin is expected to moon… or is it?

Many industry experts hold varied expectations for Bitcoin’s price following the block reward halving in May, proving 2020 is anything but mundane. 

“On both prior occasions, Bitcoin surged to a new all-time high within 12 months, with the latest coming in December 2017 when the price reached about $20,000, which was followed by a massive decline,” Bill Herrmann, CEO of alternative investment banking firm, Wilshire Phoenix, told Cointelegraph in an email on March 10. 

Herrmann also pointed out that Bitcoin’s market has matured compared to past years, noting that information available to investors is much more widespread.

“From a fundamental standpoint, it’s not like the halving only has a one day affect – it will take time to see the actual ‘real’ effects in the market,” he explained. “Additionally, more institutions are involved, particularly in the trading of CME Bitcoin futures,” he said, adding:

“When all of these factors are considered – I believe that the halving will be more along the lines of a ‘sell the news event’ or possibly even followed by muted prices.”

Times have changed since Bitcoin’s inception

Bitcoin has only completed two prior halving events, so historical data is limited. Bitcoin’s mainstream presence has vastly also changed since its last halving in 2016. The asset now has futures and options products trading based on its price in mainstream finance, for example. 

Additionally, the world currently faces intense fear and instability over the coronavirus pandemic and stock market downfall. The Dow Jones Industrial Average, or Dow, fell over 30% between February and March 2020, charts showed. Bitcoin also took a tumble, falling over 60% in the same time frame. 

Between March 12 and 13, Bitcoin suffered its most substantial price drop in more than five years, falling over 50%. In the same week, the Dow also hosted its worst single-day performance since the crash of 1987, dropping 9.99% on March 12, CNBC reported.  

Since then, however, Bitcoin is thought to have decoupled its price action from traditional markets. As the Dow and S&P 500 have continued posting red days, Bitcoin has largely traded sideways.  

Tying the coronavirus into crypto and the halving

In a March 8 blog post under the pseudonym TwoBitIdiot, Messari CEO and founder Ryan Selkis mentioned a number of thoughts on the coronavirus and its possible impact on the world economy.

Selkis talked about the halving in light of recent events. “The halving narrative is completely dead now,” he said. “The only thing that matters with respect to the halving now is whether it breaks the mining market.”

Bitcoin’s halving comes every four years

Block halvings, which occur roughly every four years, are a fundamental part of Bitcoin’s code. Roughly every 10 minutes, one of the network’s miners solves a new block problem, thereby winning a reward that contains a pre-set number of newly minted Bitcoin. In the early years, Bitcoin’s block reward paid out 50 BTC each time miners added a new block of transactions to the chain.

In 2012, the first halving occurred, cutting the block reward down to 25 BTC. Four years later, the coin’s block reward dropped again to 12.5 BTC. The 2020 halving will once more cut the reward in half, down to 6.25 Bitcoin. 

Opinions have varied over time regarding Bitcoin’s price relative to block halvings, but the general consensus usually leans toward the asset’s price pumping at some point surrounding the event — as was the case with each previous halving. 

Twitter crypto analyst, PlanB, developed a price model which shows that each halving causes a drop in Bitcoin’s supply, thereby leading to increased prices.

BTC price may not yet reflect the halving event’s impact 

Many crypto participants on Twitter share similar sentiments, claiming that Bitcoin’s current price is not reflective of the upcoming halving. This could mean that the event is not yet baked in to the current price.

Regarding this concept, Emmanuel Goh, CEO of crypto data analytics company, Skew, pointed out that Bitcoin options traders have been expecting a market downturn. 

“The options market has had a negative skew — price of puts relative to calls — for some time reflecting traders pricing in upside risk around the halving period,” he told Cointelegraph on March 9. “Although that has changed today with the market sell-off,” he added, referring to price action that took Bitcoin from $8,200 down to $7,650 on March 9.

Genesis Mining, one of the world’s biggest Bitcoin cloud mining operations, also gave a perspective on the upcoming event. “Since many miners liquidate their coins immediately, there will be less coins liquidated daily,” Genesis Mining head of operations, Philip Salter, told Cointelegraph on March 11, explaining the conditions as bullish. 

When it arrives in May, Salter said he expects the halving to be reflected in Bitcoin’s price already, without any spike northwards following the shift. 

Salter added:

“Maybe we will see a price increase leading up to the event though. Is that for sure? No, because there are many other factors that determine the BTC price. For example, many miners will become unprofitable after the halving and they will need to cancel their power contracts and sell their mining equipment. This could be bearish. The only way to be sure is to wait and see!”

Making sense of it all 

The raw data shows that Bitcoin prices have always historically spiked after halving events. However, this is merely based on a sample size of two previous events — which is circumstantial evidence at best. Given Bitcoin’s mainstream prevalence at present, matched with current global turmoil, the asset could face a lot of unexpected “firsts” in the coming months and years.