Mid-2020 will produce a major event in the cryptocurrency world. This is the month when the long-awaited Bitcoin halvening is due to occur. What does this involve and how could it affect anyone who invests in BTC, uses it or mines it?
“Bitcoin broken in half with water splash” (CC BY 2.0) by wuestenigel
The Basic Facts
The Bitcoin halvening will happen when the Bitcoin block reaches a total of 630,001. This is currently predicted to happen on May 14, 2020. At this point, the mining rewards will be cut in half. From this point on, the reward will drop from 12.5 BTC down to 6.25. The number of new coins mined each day should reduce from 1,800 to 900.
The idea behind Bitcoin halvening is to lower the rate of overall inflation, by copying the supply curve seen in other limited assets such as gold. By the time May 2020 arrives, 87.5% of all Bitcoins will have been mined. Interestingly, it is also now getting close to the inflation rate of most fiat currencies.
This is the third event of this type. It occurs every time that 210,000 new blocks are reached, which is approximately every four years or so. The last occasion should be in 2140, which is when it is expected that all 21 million BTC will have been issued into circulation.
The first halvening took place in November 2012. At this point, mining rewards fell from 50 BTC to 25. It went smoothly and the increased confidence that this gave the market led to a price surge in the subsequent months.
The second halvening happened in July of 2016. The price of Bitcoin rose before the event and then dropped quite dramatically after it. However, the longer term effect was positive, as it soon went on a solid run to reach new record highs.
How Will the Bitcoin Halvening Affect the Price?
As we have seen, previous halvening events have affected the price of this currency. So far, it has been largely positive, although there was that period of falling prices after the second time.
What will happen in May 2020? History has shown that the period before and after the halvening may see a higher degree of volatility in the market. However, this is an integral part of the coin’s mechanisms. So, there is no reason to think that it will cause prices to fall in the long term, especially given that it is something that has been known about for so long.
While some people are nervous about it, there is a growing feeling in the market that the halvening won’t have any great effect on the price of BTC.