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The upcoming Bitcoin Halving is projected to happen around mid-May, 2020, however, there is no way to know for certain. In our first article of this series, we talked about what the Bitcoin Halving is. But what does this mean for crypto investors? And what can we learn from past halvings? Read all about it in this article.
What is the Bitcoin Halving?
The Bitcoin Halving is an event that halves 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 BTC rewards than before the halving.
Will the halving have an effect on Bitcoin’s price?
Past Bitcoin Halving events have positively impacted the market price - at least when you zoom out a bit and look at the big picture. If we take a look at the 2012 halving, the price of 1 BTC rose by 8069% in the year following the halving. Additionally, one year after the 2016 Bitcoin Halving, we saw a 284% increase in the price of BTC. Consequently, the community is anticipating a price increase as a result of subsequent scarcity and past scenarios. However, we can only speculate on the actual trend ahead and there is no way to know for sure.
A window of opportunity for investors
If you are an investor, then the Bitcoin Halving should be cause for you to celebrate! However, as most investors know, the Bitcoin ecosystem today is not the same as it was four years ago, or four years before that. For example, back then, involvement in financial markets was much more limited and not as widely developed as today. Therefore, there are also speculations that the Bitcoin Halving of 2020 will not deliver the same powerful effect it did in the previous years. But no one knows for sure and one of Bitcoin’s unique characteristics it’s the high amount of unpredictable events that caused previous price movements up or down.
How the price of Bitcoin affects miners
In order to get a chance to grasp how the halving will affect the price of Bitcoin, we also need to look at the role of miners. After this Bitcoin Halving, the block reward miners are going to receive will be halved once again, to 6.25 BTC. This could mean that some miners are going to stop mining because they are no longer able to afford the upkeep of the electricity and hardware used. This, on the other hand, means that the overall hashrate of Bitcoin could decrease, as miners shut down their farms or move to other proof-of-work cryptocurrencies with similar algorithms to Bitcoin. As mining Bitcoin gets easier however, there will be others who see their chance to enter the game - that’s the beauty of it.
Will history repeat itself?
In conclusion, we can only look back at the two previous Bitcoin Halvings and take an educated guess at what could potentially happen after the third one. The past two Halvings happened during or in the middle of bull markets, where investors got more and more confident in the mid- to long-term fundamentals of Bitcoin. While we can now, at the end of April 2020, also see an increasing confidence in Bitcoin and more mainstream adoption, we are still in a phase of price discovery for this new asset class, which is just one decade old.
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).