The Bitcoin Halving is an event that reduces the rate at which new bitcoins are created and cuts the block reward that miners receive in half. This means that miners receive 50% fewer Bitcoin rewards than before the halving.
Since Bitcoin’s inception in 2008, we have seen two Bitcoin Halvings and we’re about to see our third. During the first four years after Bitcoin's creation, the block reward was 50 BTC. In 2012, this reward was halved from 50 to 25 BTC, in the following Halving in 2016, to 12.5 BTC. And now, after the 2020 Halving, it will drop to 6.25 BTC.
The Bitcoin Halving may affect the supply and circulation as it becomes scarcer. Some may be less willing to trade, reducing the supply and circulation. Or, we could see Bitcoin demand rising. The only thing we could do is learn from the past. So, here are five lessons learned from the past Bitcoin Halvings and what could happen after the Halving in May, 2020.
Lesson one: We learned how volatile Bitcoin is
When the first official Bitcoin Halving took place on November 28th, 2012, the price of Bitcoin was approximately $12 (USD). A year after the Halving, the price of Bitcoin “went to the moon” with an incredible increase of 8069%, ending up being valued at around $1000 and made history for crossing this barrier.
At this point, early investors who had taken a chance on Bitcoin were singing its praises. Unfortunately, after the year we also learned that what goes up must come down. The year following the Halving, in December of 2013, we saw a massive crash of the BTC price of more than 80%. The decline was owed largely to the Mt. Gox hack,one of the biggest and most notorious hacks in the history of Bitcoin. This event has become somewhat of a cautionary tale for all investors, as it showed just how important it is to do due diligence on where you buy your Bitcoin and how you store your private keys. As a side note, Bitpanda was founded in the year of the Mt. Gox hack to solve exactly the problem so many people had back then: how to securely and conveniently obtain Bitcoin. In terms of price, it meant that investors did not see a reversal of this bearish market until two years later.
Lesson two: Halving uptrends usually result in bull runs
Before the first Halving in 2012, we saw what is called a “pre-halving uptrend”. It brought a 341% increase in the price of Bitcoin and resulted in a bull run market. However, the price crashed again in late 2013, as described above.
Then once again, nine months prior to the second Bitcoin Halving in 2016, the price began increasing again up to 112% until it reached an approximate trading price of $650, again followed by a bull run. The price then increased, taking just a very brief and minor dip 12 months after the second Halving, and then kept rising towards its all-time high.
If we consider history an indicator, we can learn from these findings that there is a distinct pattern in the Bitcoin market, which is unique in terms of its predictably lower supply every four years and an overall trend towards increased demand. Keep in mind that this is only a look at the past and we should always take those lessons with a grain of salt. We will leave you to study and interpret these patterns as we move onto the next lesson.
Lesson three: We see a change AFTER the Halvings
It’s natural to want to see an instant increase in the market once you deposit funds into the ecosystem. Unfortunately, it just doesn’t usually work that way! If we study the past two Halvings, we see bigger price moves occurred three to six months after the Halving. If we use the very first Halving as an example, the immediate outcome at first seemed somewhat anticlimactic, not much changed in the price of Bitcoin. However, as we’ve mentioned above, when you take a step back, we can see a massive bull market where Bitcoin reached it’s first all-time high almost a year later.
If we fast forward four years later to the 2016 Halving, again not too much happened right after the Halving itself. However, approximately six months later we saw an incredible surge, which led to Bitcoin’s price settling at about $20,000 (USD)! So what we can take from this lesson is: be patient!
Lesson four: Miners learn to sell at the right time
After looking at the previous two Halvings, it seems there is an emerging trend that the price of Bitcoin rises prior to the Halving and then crashes a year after. Miners learned their lesson and as a result, many sell before the Halving in order to accumulate enough Bitcoin to finance the cost of their setup for the months to come.
As you may know mining Bitcoin is a very cost-intensive process, and many miners are not able to break even (that is, earn enough to cover the cost of the equipment). Experts speculate that the break even price of Bitcoin mining this year will go from $7000 to approximately $15,000 after the Halving. If you would like more information about what the Bitcoin Halving means for miners, then you can take a look at our previous article.
Lesson five: A look to the future; we learn to trust the right broker
In Bitcoin’s humble beginnings, there were not that many established brokers to facilitate trades and many that sprung forth over the course of time turned out not to be trustworthy, often suffering technical issues. It was for this reason that scams were even more common in the early days and finding the right broker was difficult.
If you’ve been around since the beginning, you can see how much the crypto space has matured. Platforms, such as Bitpanda, have made it easy for anyone to buy, hold and sell Bitcoin and other digital assets. This was a difficult feat in 2016 and practically impossible in 2012. With the word spreading about Bitcoin and with investing becoming more accessible everyday, nearly everyone has at least heard of Bitcoin.
You can learn more about Bitcoin, mining, and investing on the Bitpanda Academy, or invest in over 30 digital assets on our platform.
RISK WARNING: The information contained in this article is for general purposes of information only and is not in any form an investment advice. Please note that cryptocurrency trading may involve a significant level of risk and is not suitable for inexperienced traders. For further information regarding the risk in connection with cryptocurrency please also refer to our terms and conditions (see 12. Risks).