What is Bitcoin Halving?
Bitcoin Halving is a phenomenon that happens every four years and where the amount of Bitcoin that miners receive for mining Bitcoin blocks gets reduced at its half that is why it is called “Bitcoin Halving”.
This happens every four years when 210,000 blocks get mined. In Bitcoin’s third Halving, the amount of Bitcoin miners receive has gotten diminished from 12.5 Bitcoins to 6.25 Bitcoins and by 2140 all blocks will get mined, which means that all 21 million Bitcoins will be distributed among Bitcoin community. At that point, miners will be rewarded with fees for processing transactions that network users will pay. In the history of Bitcoin, there have been three Bitcoin halvings and the next one will be in 2024. At that time the reward Bitcoin miners will receive will be of 3.125 for each block mined.
At the time of writing, there have been 3 Bitcoin Halvings
First Bitcoin Halving
The first Bitcoin halving event took place in 2012, cutting the original block reward from 50 BTC to 25 BTC. Bitcoin ascended for about $11 USD to above $1,000 USD in 2013 after the 2012 Halving event.
Second Bitcoin Halving
The second Bitcoin Halving happened in July 2016. The block reward was cut at its half and miners received 12.5 BTC instead of the previous reward of 25 BTC per block. Its price was wandering around $600 and $700 but in 2017 Bitcoin price took off and hit $20,000 USD, reaching its historical top, on December 17, 2017.
Third Bitcoin Halving
Third Bitcoin Halving occurred on 12 May 2020 and it cut the block reward from 12.5 to 6.25. There are two possibles scenarios that could happen after this Halving:
1. Bullish scenario
The primary bullish scenario following Bitcoin’s block reward halving is a breakout of a major trendline above the $14,000 mark, which dates back to 2017. In the past year, Bitcoin’s price moved within a large multi-year cycle established by its record high at $20,000, and its June 2019 peak at $14,000. Experts such as Zac Prince (CEO and co-founder of BlockFi, a firm that makes loans with cryptocurrencies) claim that Bitcoin could soar past $20,000 and its bull run could peak at between $40,000 and $100,000 over the next two years.
Some analysts are bullish on Bitcoin price because they think that due to the economic crisis that will follow Coronavirus pandemic, people will look for a safe place where to put their assets and they will see Bitcoin as the perfect alternative. Thanks to its decentralization, the government cannot use the money you invest in cryptocurrencies such as Bitcoin, that is why so many people are starting to consider investing in Bitcoin or not necessarily buying bitcoin itself, but rather buying shares in trust companies that do.
The third reason why Bitcoin can be bullish is because of its historical performance.
As can be seen historically every halving has triggered a bull run. Between every halving, there has been a five-phase pattern
- 1st phase: Bull market
- 2nd phase: Bear market
- 3rd phase: Accumulation
- 4th phase: Expansion
- 5th phase: Reacummulation
2. A bearish scenario in the short term
In the short-term, several cryptocurrency traders anticipate Bitcoin’s price to drop to as low as $6,500. There are strong arguments to be made for a temporary bearish price trend after the halving. A confluence of Bitcoin nearing a major overhead resistance at $10,500 and historical data suggest a steep fall following a halving.
So, if what has happened historically to the price of Bitcoin, occurs again, then we may witness a mad rush by traders to purchase the asset in order to be a part of its rising price. These actions will trigger the increase in demand for the crypto asset, leading to the increment of its price.