Will bitcoin see its next halving in 2020?
You may have heard about the Bitcoin halving in the media. It’s supposed to help the price of Bitcoin skyrocket. But why? What’s the big deal about the 2020 Bitcoin halving?
Well, the Bitcoin halving in 2020 is supposed to happen on May 12th, 2020. So let’s examine a bit of the basics. That way you can be prepared!
Blockchain in Brief
A quick and accurate definition of blockchain is “A digital, distributed ledger which contains data for all the transactions that have ever taken place using a given cryptocurrency.”
Think of blockchain exactly as the name suggests: a chain of blocks. Remember when you were young and in preschool? You’d play with blocks. Scribble things on them. Stack them on top of each other. Blockchain is similar but on the internet.
You write details on a block (“Joe pays Alice 1 Bitcoin on Saturday, June 8th, 2019”). That block fills up with writing. Then another fresh block is stacked on top. No one can change the writing on your block without first removing all the blocks on top of it. In preschool, some bully could just knock it all down. But on digital blockchains that is much, much more difficult to do almost impossible.
Bitcoin is built on a blockchain like that. And every time a block fills up and a new block is put on top a reward of 12.5 fresh new bitcoins is given out.
The 2020 Bitcoin halving – What’s the Big Deal?
Well, currently the reward for finishing one block and stacking another is 12.5 new bitcoins, right? The person who gets them – a “miner” – put in a lot of electricity and computing power for that reward. To help cover those costs (and gain a profit) he or she will sell them.
During the 2020 Bitcoin halving, that reward will be cut in half (That’s why it’s called a halving). It’ll go from 12.5 BTC to 6.25 BTC.
So what will the miners do? Their electricity and computer power costs stay the same but their reward goes down. Naturally, they will charge more for selling the mining reward they get.
Imagine if all the gold miners around the world suddenly had their gold ore supply in the mountains cut in half. They wouldn’t stop mining. They have the equipment and experience. No, they would simply increase the price to cover their costs.
Markets still demand gold. For jewelry and for safekeeping. Eventually, people buying gold would simply need to pay more.
That’s basic supply and demand. And that’s why the 2020 Bitcoin halving is such a big deal. It means that sooner or later the price of Bitcoin after the halving must go up.
After all, cryptocurrency markets also demand fresh new bitcoin for speculating, trading, and accumulating in funds. Eventually, they will pay more.
Should I Buy BTC Before or After the Halving?
Does all this mean that the best time to buy is before the May 12th, 2020 Bitcoin halving? That’s a yes and no question.
Should you mortgage your house or sell a kidney before May 12th? No, never. Bitcoin, like many other assets, can be risky. It’s famous for being volatile and often rising and falling in ways no one expects. Buying bitcoin should be done after you’re comfortable with storing, transferring, buying and selling it.
But should you buy an amount that you are comfortable with putting on the table? An amount that you’d be okay with losing if things go sideways? The answer might very well be yes.
One thing’s for sure: the 2020 bitcoin halving is on its way. And it waits for no one.
What Happened to Bitcoin in Previous Halvings?
A good view of the future can sometimes be seen by taking a hard look at the past.
“History doesn’t repeat itself, but it often rhymes.”
This quote is written quite a lot especially when someone is talking about politics or the economy. It’s said that the great Samuel Clemens (a.k.a. Mark Twain) is the gentleman who came up with it. He was one of the best American humorists and a public commentator on various subjects. It makes you wonder what he would say about Bitcoin and the having, right?
Well, there’s no denying supply/demand economics and Bitcoin does have history on its side. The 2020 halving is the 3rd halving the two before it happened in 2016 and 2012. Both of them were followed by tremendous increases in market cap, price, and media exposure.
But the increases in price didn’t happen straight away. No, it may be tempting to hope that as soon as the 2020 bitcoin halving hits then BOOM, miners will refuse to sell for a low price and everyone will need to adjust to an immediate doubling of price.
In 2012 the price didn’t begin rising for several months after the halving. In 2016 the price really didn’t begin to go up until 2017 and then hit its peak another year later in January 2018.
So what can these previous bitcoin halvings tell us about the 2020 bitcoin halving? If history is to be believed then we may need to wait until 2021 or even 2022 for the price to make large waves. The question becomes …do you have the patience for it?
The 2020 Bitcoin Halving – Is This Time Different?
But what if history doesn’t repeat itself this time? What if the 2020 Bitcoin halving…is a big brick of a failure?
There have been several arguments put forth that bitcoin buyers and sellers in 2016 and before were not as experienced as they are today and were therefore surprised by BTC’s moves. Now, with 10 years of experience arguments have been put forth that the halving is “already priced in.”
These experts say that the 2019 price move from $3,300 to $12,000 was the market pricing in the halving. This means that perhaps the bitcoin miners were selling off their stock while the price-to-cost of mining 1 BTC is high. Then when the halving hits they will sell less BTC and live off their profits for a long time.
After all, the crypto market can be quite efficient when distributing information distribution. Smart investors obviously must have already calculated supply adjustment into their models. They’ve long ago taken positions accordingly.
Here’s another quote:
“Models will fit until they don’t.”
We can believe the Stock-to-flow model and all models as much as we want but the fact is that bitcoin and its ecosystem are currently different from previous halvings. 2016 never had any CME, or talk of ETF’s or derivatives markets. Institutional involvement was almost non-existent.
The market has grown considerably since those days. How will all these new people and positions affect the price?
Keep in mind, too, that it’s been proven at least in traditional markets, that price is seldom as simple as a function of supply. Price is far more influenced by just how much demand for Bitcoin or other assets there is. Many current models don’t predict what the demand will be after all, how could they?
This ends up leaving us in a quasi speculative state. Will prices go up? Will they go down? Or perhaps they’ll simply bounce around in a range for a few years. Time will tell!