VP of CoinAll: The halving will pump the price as Bitcoin is a long-term investment
As many knows, Bitcoin(BTC) has limited supply. Every four years, BTC performs the so-called “halving”. There have been two previous halving events before, and BTC price has gone up following a halving historically. So people consider the halving as a catapult for BTC price and believe it to be extremely bullish in 2020.
Will the cryptocurrency market get better in 2020? Will the bull run as predicated?
The Year of Halving
To understand why halving may bring good news, you must first understand the basics of halving in cryptocurrency. In short, halving is at the core of the cryptocurrency economic models because it ensures tokens will be issued at a steady pace, following a predictable decaying rate.
Let’s take Bitcoin as an example. When Satoshi Nakamoto set up the protocol for Bitcoin, he put two essential things in the white paper. First, the Bitcoin supply is finite and limited to 21 million. Second, the block reward of Bitcoin is set to decrease by 50% every 210,000 blocks, then producing new coins becomes more difficult. The block reward, initially set to 50 BTC, fell to 25 BTC in late 2012. Sometime next month, this number is expected to fall to 12.5 BTC. This event is known as a “halving”. Just like in gold mining, the price goes up while finding new deposits becomes more challenging over time.
The limited production of Bitcoins was aimed at avoiding the endless printing, which is common in fiat currencies. Compared to gold mining in the original Bitcoin white paper, Satoshi wrote:
“By convention, the first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This adds an incentive for nodes to support the network and provides a way to initially distribute coins into circulation since there is no central authority to issue them. The steady addition of a constant amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.”
How Will the Bitcoin Halving Affect Bitcoin’s Price?
Bitcoin experienced its first halving event on 28th November 2012, the block reward falling from 50 to 25 bitcoins.
Back then, the network hashrate was only 25,000 GH/s. A month later, the network hashrate dropped to approximately 20,000GH/s. By February 2013, however, the hashrate had returned to its previous high and continued to rise from there.
The price for one Bitcoin at its first halving was around $12.25, which meant that miners got only $612.50 per block. But by February 2013, the price doubled to $30. Miners had lost half of their income, but the price had soared enough to cover this loss. By April 2013, one Bitcoin had increased to approximately $181.
Today, the network hashrate is 111.60 EH/s at the time of this writing. If the halving is coming on time, the hashrate could drop a lot. Fortunately, BTC miners can look to Litecoin for insight into what might occur at halving, which occurred in August 2019 already.
Essentially, while profit did not drop, miners didn’t have any reason to shut their hardware down that they had already paid for. In other words, the hashrate may drop since the reduced income, but it might not be as significant a drop as it was the first time.
The exact impact on the network — and the price — remains to be seen, and the weeks leading up to the event will likely see no shortage of commentary and speculation as to the outcome.
Rabbi Jiang, VP of CoinAll, offered the following theory of how the halving affects Bitcoin’s price:
“This all depends on the bonds between the primary market and the secondary market. Here the “primary market” and “secondary market” are both distinct terms; the primary market refers to the miner and mining pools where Bitcoin is generated, while the secondary market is one in which they are traded among investors. In short, to predicate the trend, we need to consider the involvement of miners and the movement in the secondary market both.
As Bitcoin price climbs in this month, reducing the position-holding costs is impossible. And miners, as one can imagine, stand to be impacted the most when the next halving takes place. The cost of miners will increase, which leads to the price rise. In my opinion, it’s the right timing now (to scale out). That’s why CoinAll opens a fee-free trading event now. It’s important to note that the Bitcoin network has been growing steadily, I’d like to consider Bitcoin as a long-term investment, instead of a vehicle for short-term gains.”
Will the bull run as before?
Technically, the halving isn’t a “fundamental” event, in that it does not represent a value driver in traditional investment terms. Fundamental analysis is a method of evaluating the intrinsic value of an asset and analyzing the factors that could influence its price in the future. This form of study is based on external events and influences, as well as financial statements and industry trends. But in Bitcoin pre-programmed scarcity is not fundamental, it’s factual.
We know that the halving is about to happen; no one doubts this fact. Yet the influence is not apparent. Most people expect that halving will influence the price by stimulating demand for bitcoin as an investment asset. They think the price will rocket because the supply and demand will be out of balance, as the block rewards are continually reduced.
In theory, if supply is cut and demand stays constant, prices rise. But the problem is, it’s hard to say the cryptocurrency market will attract how many players in the future. Although the history proved bull would run before or after the halving.
Not only Bitcoin, but many Altcoins will also reduce its production in 2020. if history repeats itself and the Bitcoin price starts going up in April 2020, even more traders might start buying the asset out of a fear of missing out, thus stimulating the demand, and, ultimately, the price. And if the halving does bring good news, there is still a possibility for the cryptocurrency market to grow bigger.
