With less than a month to go (end of May 2020), the event of Bitcoin Halving, which occurs only once every 4 years, is drawing a lot of attention and anticipation from many investors. Many investors are wondering and seeking predictions about Bitcoin’s price trend after this year’s Bitcoin Halving event.
Let’s explore what Bitcoin Halving is, its important role, and the potential scenarios for BTC after the Halving through the following article:
What is Bitcoin Halving?
Bitcoin Halving is a periodic event, happening once every 4 years, where the block rewards (transaction incentives) are halved.
Bitcoin will have 32 such Halvings during its lifetime, each occurring after 210,000 blocks have been mined.
So far, Bitcoin has undergone two Halvings (in 2012 and 2016), and the third will occur at the end of May 2020.
The importance of Bitcoin Halving
Bitcoin’s creator, Satoshi Nakamoto, never revealed the purpose behind Bitcoin Halving, but according to vietnam – ustrade.org, this event that occurs every 4 years plays a very important role, specifically:
The halving of miners’ block rewards helps to regulate inflation, gradually shifting the network’s security from block rewards to transaction fees. This is considered a positive signal, and vietnam – ustrade.org will explain more below:
Monetary Inflation
The fixed supply of Bitcoin (BTC) is 21 million, with inflation rate pre-determined at 12.5% per year.
The reward per block decreases by half after each Halving, reducing supply; after 32 Halvings, Bitcoin’s inflation rate will decline to zero.
What’s interesting here is that when inflation rate drops very low (< USD inflation rate), Bitcoin will gradually replace and become a store of value instead of fiat currencies.
Network Security
Miners are the core component responsible for securing the BTC network, and they are also most affected by the Halving event. When the block reward is halved, miners’ profits are also halved. Consequently, the number of miners will significantly decrease after each Halving. This helps to select long-term vision miners with good capacity to replace those lacking resources.
The profitability of mining and network security will gradually shift reliance towards transaction fees, which promotes the widespread use of Bitcoin worldwide.
Recap of Bitcoin Halving milestones
Before the third Halving event at the end of May, Bitcoin has undergone 2 Halvings out of 32, specifically:
First Bitcoin Halving
This first event occurred in November 2012 at block 210000. The reward per block was cut from 50 BTC to 25 BTC.
After the first Halving, BTC price surged, hashrate dropped sharply, and mining profits plummeted, with the following indicators:
Strong increase in BTC price
Chart data shows that Bitcoin began a strong growth phase (bull market) one year before the first Halving (November 2011), which persisted until after the event (November 2013).
From approximately $2.29 to over $1114, a growth of 50,162%, is truly remarkable.
However, immediately after December 2013, Bitcoin entered a downtrend, losing about 80% of its value.
Significant decrease in hashrate
Soon after, hashrate dropped from 29.145T to 18.11T, a decline of nearly 37.86%. This indicates a significant reduction in miners after the first Halving.
Mining profits declined significantly
Mining profits fell over 60% after the first Halving, and it took 2 months to recover the initial profit levels.
Second Bitcoin Halving
This occurred in July 2016 at block 420000. The event took place 150 days earlier than scheduled (less than 4 years between splits), thanks to specialized ASIC miners.
This time, the block reward decreased from 25 BTC to 12.5 BTC per block.
After the second Halving, BTC’s price surged again, while hashrate and mining profitability decreased.
Bitcoin’s price rose significantly
Bitcoin started a strong bull market 9 months before the second Halving, which lasted until after the event (approximately one year).
The earlier occurrence of the second Halving accelerated the bull market.
Post-bull market, Bitcoin’s price soared from $213 to $19,500 (up 9000%).
Immediately after, BTC entered a downtrend, losing about 80% of its value.
Hashrate decrease
Unlike the first time, this time the hashrate decline was mild, which is a positive signal indicating network expansion and strong support for Bitcoin mining from large investors.
Mining profit decline
Mining profits decreased by about 51.2% after the second Halving and took 10 months to recover.
Predictions for the 2020 Bitcoin Halving
This third Halving is expected to occur at the end of May 2020, with the block reward halved from 12.5 BTC to 6.25 BTC. Many investors are eagerly awaiting this event, hoping for a strong price rally. Will it happen? vietnam – ustrade.org provides information and factors below to help you make your own judgment:
Historical price increases
As seen from previous two Halvings, BTC price consistently increased, reaching new all-time highs within one year after each event.
However, considering the volatile nature of the crypto market, one year can be too long. Therefore, vietnam – ustrade.org synthesizes data on BTC price fluctuations during the three months before and after Halving to make predictions.
It appears that in the two previous Halvings, if investors bought BTC before 90 days and at the time of Halving, they definitely gained profits.
However, for this upcoming Halving, at 90 days prior, the BTC price is at a peak of $10,300.
Whether Bitcoin can surpass $10,000 in the remaining 30 days remains uncertain.
Stock-to-Flow ratio
The Stock to Flow ratio measures the scarcity of an asset, calculated by dividing stock by flow, where:
- Stock: Total circulating supply
- Flow: Annual production quantity
Thanks to its limited supply and Halving events, Bitcoin is called digital gold.
The scarcity index SF of BTC is anticipated to reach 55.94 (close to gold’s level) after the third Halving at the end of May.
However, there is no official answer yet on whether the SF scarcity index will lead BTC to see a significant price increase like gold has over centuries.
Some opposing opinions claim that valuing by the SF scarcity index is meaningless, citing that the accuracy of statistical probability of such models depends on external unchanged conditions.
Therefore, investors should treat SF as a reference indicator, not overly rely on it for investment decisions to avoid unnecessary risks.
Increase in whale holdings
On-chain data analysis shows an increase in the number of whales holding BTC in recent reports.
Six months before the second Halving, whale holdings surged by about 17.65%. Yet, right after Halving, whales decreased sharply as profit-taking trades increased.
Currently, since the beginning of 2020, whale numbers have been on the rise, especially after Bitcoin’s sharp 39% drop in one day on March 12.
This situation resembles the pattern observed before previous Bitcoin Halvings.
Nevertheless, whether this indicates a positive signal ahead of Halving remains an open question.
Bitcoin price trends during 2020 economic crisis
Since its inception after the 2008 economic crisis, BTC has not faced a major crisis yet.
However, unlike the previous two Halvings, this upcoming third will occur amidst an imminent economic crisis. All financial sectors are expected to suffer from value decline, and Bitcoin is no exception.
Bitcoin’s price trend and the S&P 500 index are closely aligned in recent declines.
Conclusion
Through this article about Bitcoin Halving, I hope to provide useful information, giving you an overview to make judgments and decisions for the upcoming third Halving. Wishing you success.
