The Future of Bitcoin Beyond Halving

Cryptocurrency markets are gearing up for what could be considered the digital world’s most anticipated event of the year

What you need to know:
Bitcoin halvings happen approximately every 4 years. With the third halving event scheduled for mid-May (the precise date is contingent on the time it takes to generate new blocks), digital asset investors are watching the market closely. Halving events function as a mechanism to reduce the supply of bitcoin (BTC) in circulation. New BTC enters the market as block rewards to bitcoin miners. The upcoming halving will reduce BTC per block mined from 12.5 to 6.25, which will essentially equate to a 50% depletion of new bitcoin entering the market. That said, miners are still incentivized to mine if BTC prices increase, raising their transaction fees. While BTC supply is projected to grow by circa 2.5% this year at an average rate of 1,800 new minted coins per day[1] , this would be an all-time low.

One of the primary attractions of BTC is its fixed supply – the network protocol only allows for 21 million coins to ever be mined into existence. And there are only circa 2.68 million coins remaining to be minted, which is roughly 12.5% of the total supply[2]. Supply is further contracted as an estimated 5 million BTC has been lost or stolen in various hacks such as that of Mt. Gox. limiting the effective circulation of BTC to just over 13 million at present.[3]

Many market observers are drawing comparisons between this year’s bitcoin halving to past events when gold’s supply was projected downwards of 50%. The two previous halving events in 2012 and 2016 drove material price momentum. After the 2012 halving, the price of BTC/USD rose briefly from $11 to $12 and then peaked at $1,038 over the course of the following 12 months[4]. Similarly, in the month prior to the 2016 halving, BTC prices appreciated from $576 to $650 as buyers started accumulating in anticipation of the halving, it then fell 41% two weeks after, before it soared to a high of $2,526 over the course of the year following.

Short Term Effects
In Bloomberg’s 2020 crypto outlook released in January, many investors said they believed this halving would result in a further surge, while others suspected that the event was common market knowledge and unlikely to result in a dramatic spike. Other factors coming into play include a weak dollar, a rise in gold prices and stock market volatility that could also drive BTC price momentum. Indeed, BTC experienced an 18% price surge on April 30th, rising to $9,470 before retreating to the upper-$8,000s, this spike increased the entire crypto market capitalization by $35 billion[5]. Analysts attributed this sudden bullishness to the upcoming halving in contrast to the increased supply of fiat currencies from global central bank stimulus programs. The outperformance of BTC or ‘Bitcoin Dominance’ has risen to a two-year high of 66%, demonstrating that BTC continues to draw in liquidity from investors[6].

The Future of Bitcoin Beyond the Halving
While the halving may result in a tempered price appreciation, BTC’s price performance has been mainly attributed to the asset class gaining greater mainstream recognition. Despite global growth adversely impacted by pandemic fears and with global stimulus packages abound, the supply of BTC continues to be scarce as its future strives ahead. Indeed, the fragilities in fiat and stock markets may encourage traditional investors to diversify investments into this emerging asset class.

[1] Coindesk. Bitcoin Price Will Be Golden in 2020 (January 2020) (link)
BuyBitcoinWorldwide data. How Many Bitcoins Are There? (May 2020) (link)
[2] Coindesk. Bitcoin Halving, Explained (March 2020) (link)
[3] How Many Bitcoins are There? (February 2020) (link)
[4] Cointelegraph. Bitcoin Halving History. (May 2020) (link)
[5] TradingView data as at 30 April 2020.
[6] TradingView data as at 4 May 2020.