Cryptocurrency enthusiasts are on the edge of their seats right now, with Bitcoin’s hugely anticipated halving right around the corner. There is no exact date for this to take place, and all of the online reports merely state ‘Mid-May’ or possible the 12 of May as an anticipated time slot.
Assuming these reports are true, we are quite literally days away from arguably the most important cryptocurrency occurrence of the year. While the halving approaches the price of the Bitcoin continues to go up and Google has reported record high searches across the globe on “Bitcoin halving.
With that being said, there is still a lot of misconceptions and misinformation out there about what actually happens during a halving, as well as how this could affect the value of this currency. We’ve looked at all of this in this article, and explained each element in much greater detail.
What exactly is a Bitcoin halving?
A Bitcoin halving is an event that takes place once every 4 years or once every 210,000 blocks that have been successfully mined with the purpose to control inflation. If you are unfamiliar with how Bitcoin’s enter circulation in the first place, they are ‘mined’ by people referred to as ‘Bitcoin miners’ who solve a series of highly complicated equations to release Bitcoins. These miners are often made up of a team of individuals or hundreds of pieces of mining equipment, and this is where Bitcoins come from in a nutshell.
Once these guys and highly complex computers have mined 210,000 blocks, the Bitcoin halving takes place. What this actually means is that the rewards that these miners receive are essentially 50% of what they were previously getting. For example, if they were previously getting 1 bitcoin for every 10 equations solved, they would get just 0.5 of a Bitcoin after the halving takes place.
What this does to the supply is basically halve it as well, meaning that Bitcoin’s enter the market at a much slower rate. Considering that bitcoin mining is a billion-dollar industry one can assume there are Bitcoin minors right now with a billion of reasons to be concerned.
Pricing shifts explained
Historically, when a Bitcoin halving occurs which is basically once every 4 years, we can expect to see enormous shifts in the volatility of Bitcoin’s price. As investors know, volatility isn’t always a good thing, and it certainly doesn’t guarantee that a price will go one way or the other. All we can go on here is historical data, and we can say with certainty that sometime after the halving of Bitcoin the price usually reaches an all-time high.
The catch is that it’s almost impossible to know when this high will be reached, as it may not directly follow the halving itself. It can take weeks or even months for the Bitcoin price to rise to new highs, but when it has done in the past, we’ve usually seen a surge like no other asset class on the planet.
If we look at the previous halving that took place in July 2016, Bitcoin was priced at just shy of $700 at the time of halving. The following December, Bitcoin reached the infamous pinnacle of somewhere near $20,000.
What does this mean for Cryptocurrency as a whole?
Bitcoin payments have steadily become more popular. Many still associate the use of cryptocurrency with Bitcoin casinos on the internet but during the last years more and more hotels, restaurants, and online stores have realized the advantages of accepting not only Bitcoin but also other cryptocurrencies. If you follow cryptocurrency closely, you’ll notice that many other cryptocurrencies perform in a very similar way to Bitcoin but during the corona pandemic, several traditional currencies have dropped.
There have been speculations that the COVID-19 emergency has made people question the stability of the traditional currency and would explain why Bitcoin trading has increased during this period. Under other circumstances, the Bitcoin currency is almost a mirror image in terms of performance as well as when the price dips and rises. Usually, when the price of Bitcoin increases, the price of other cryptocurrencies like Ethereum or Litecoin also increases, although the relative increases are always different.
If we were to go with the optimists around Bitcoin, it would be feasible to say that the overall value of cryptocurrencies will increase sometime after the halving. To understand why we can refer to basic economics. This suggests that when there is reduced supply, the subsequent price of that good, or asset, in this case, will increase. This economic theory has proved to be true for decades, so we are fairly confident in the research backing it up.
The Bitcoin halving could take place on or around the 12th of May but no one can say anything for sure. What we can say for sure is that it is going to be a heck of an event for all those involved in cryptocurrency. In fact, for cryptocurrency enthusiasts, this is the World Cup of cryptos, and just like the World Cup (coincidentally), it takes place once every 4 years.
Investors are still somewhat torn over the upcoming event, with some slinging a lot of money in and others selling in fear that the asset price will decline. At this point, maybe only the creator of Bitcoin knows? We will be keeping a close eye on this event that’s for sure!
About the author: Amir Hassan is a financial writer specializing in Arab Financial and Trading and Cryptocurrency at ArabFinancials.org.
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