Bitcoin Halving: Price Effects and Historical Relevance
Over the past 18 months, the crypto community has faced a significant bear market. Major digital assets such as Bitcoin and Ethereum have endured 70–80% declines while the rest of the “altcoin” market has looked much worse. Luckily, 2019 has shown to be a more promising year for digital assets as Bitcoin and Ethereum have increased by +55.45% and +48.69% over the past three months, respectively. As the outlook becomes more positive, the community is looking ahead towards one major event coming in the next year — the Bitcoin halving.
Historically speaking, the Bitcoin halving has exhibited itself as an extremely positive event for price action. For those of you who are unfamiliar, the Bitcoin halving is when the network’s issuance rate (or inflation rate) is reduced by 50% every four years. Cutting the inflation rate in half not only reduces the amount of new Bitcoin entering circulation every day, but it also increases the mining costs for securing the network. In the past, this has been one of the driving factors behind Bitcoin’s previous bull runs.
Before we dive into the historical effects of the Bitcoin halving, we first want to outline the economic dynamics surrounding its halving. If you’re already familiar with these nuances, feel free to jump to the “Halving’s Historical Effect on Price” section.
The issuance schedule states that block rewards will continually diminish by 50% every 210,000 blocks, effectively reducing Bitcoin’s issuance to zero as time goes on.
Bitcoin began with a block reward of 50BTC per block. Seeing as the network was (and still is) in its infancy, the time associated with the creation of new blocks has gradually changed as computational power is added and removed from the network. Generally speaking, historical data has shown that a new block is created about once every 10 minutes. Taking this assumption into account, we can assume that the block reward will halve roughly once every 4 years. The math is as follows:
210,000 blocks x 10 mins per block / 60 mins per hour / 24 hours per day / 365 days per year.
Here’s a look at how this has played out in the past: