In cryptocurrency circles there is considerable discussion going on around the May 2020 Block reward halving. Previously, two halvings were undertaken back in 2012 and 2016. Let us discuss briefly what is this halving and how previous halvings impacted the cryptocurrency’s price.
What is Block Reward Halving?
Every 10-12 minutes, 12.5 new BTC are created by the Bitcoin network and distributed among miners in an equitable manner. Miners are professionals who dedicate huge computing resources to help secure the network and the newly created Bitcoin are a reward of their efforts. This is called the Block Reward, but it is not designed to be constant throughout time because we are close to a paradigm shift in the cryptocurrency sector: The Bitcoin Network is undergoing a block reward halving process on May 12, 2020. The number of newly created Bitcoin is going to decrease from 12.5 Bitcoin to 6.25 Bitcoin every 10-12 minutes on this date and thus, Bitcoin is expected to become scarcer.
Bitcoin investors are hoping that this decreased supply will result in considerable appreciation of the cryptocurrency. Estimates and predictions vary and no one knows for sure how much of an impact this halving will have on the Bitcoin price index. However, this is not a new phenomenon as explained earlier and has happened twice since the existence of the cryptocurrency network in 2009. Let us see how the Bitcoin Price behaved back then.
The 2012 halving
The 2012 halving was a long time ago in Bitcoin history. Bitcoin had only been in existence for three years and there was limited public adoption. The first halving took place on November 28, 2012 with the block 210,000 on the chain.
Here is its chart:
Image source: Rekt Capital
The 2012 halving graph shows that around the halving, Bitcoin didn’t appreciate a lot during the actual halving itself. It did show a lot of volatility since the asset was new back then and even a price increase of 1-2 times was considered normal.
But, at the same time, it can be seen that the price increased exponentially some time after the halving. The price increased from $11.5 to a maximum of $270 before settling down around the $125 mark. So, it can be said that the long-term effects of the halving can be seen on the price index as supply becomes constricted with the halving.
The 2016 halving
The 2016 halving was a different ball game altogether. Bitcoin had gained considerable exposure at that time. Many coin enthusiasts believed that it was ready to break off around the halving.
Here is the graph of the 2016 halving:
Image source: coinmarketcap.com
This time the halving just like the 2020 one generated a lot of buzz and the price index responded in the buildup, but not considerably. In the buildup, the price increased from $40 to $730 but soon suffered a considerable drop. The price index around the actual halving timeline i.e July 9, 2016 remained largely stagnant and even suffering a drop later in August. This graph ends there but it doesn’t tell the whole story.
In 2017, the cryptocurrency underwent its biggest upwards trajectory ever, starting from $500 and reaching as much as $20000 in January 2018. This represents a 40 times price increase in a matter of just one year.
While much of the price increase is due to the involvement of more and more investors, the decreased supply definitely played a decisive role in bringing new investors and adopters from around the world into the cryptocurrency scene.
The 2020 Halving
Just like any financial market, it is difficult to predict where Bitcoin will go in the near future, however, the 2020 halving is an interesting use case and if it behaves anything like the previous halvings, it will actually remain stable during the actual halving and shoot upwards in the coming months just like previous halvings. However, not all trends are repeated in the cryptocurrency world so one must invest with caution and only what he/she can risk in such a volatile market.