The Bitcoin halving is approaching. Bitcoin halvings are scheduled to take place once every 210,000 blocks (every four years)- until the maximum supply of 21 million bitcoins has been made by the network. Bitcoin halvings will continue to take place until all Bitcoin is supplied.
The Halving Effect
Source: Fintechna
When the halving occurs, the mining rewards for BTC, BCH, and BSV will be reduced from 12.5 cents to 6.25 cents. Whenever miners help create a block, they are rewarded with cryptocurrency. The rewards are reduced in order to ensure that inflation does not lower the price of Bitcoin. As mining rewards reduce, the hash rate for the cryptocurrency is likely to reduce. As supply reduces overtime, prices increase.
Bitcoin mining has become a much harder exercise since the early days. With more miners on the network, there is more competition as mining difficulty increases. The more people try to solve problems for a block, the more difficult it becomes to successfully solve on as a miner.
The last two Bitcoin halving events in 2012 and 2016 led to new highs for the Bitcoin markets. New highs were achieved within a year to a year and a half of Bitcoin halving events. This could suggest that if similar highs are experienced after the Bitcoin halving, they could a year and a half after this year’s Bitcoin halving.
Demand and Supply Forces
New coins in the ecosystem are created through the process of mining. As the supply of cryptocurrency increases as a result of a successful mining process, rates may remain constant, providing that supply grows at the same rate as demand increases. Where the rate at which there is an increase in supply is less than the rate at which demand for the cryptocurrency increases, price may rise. This, as well as other factors suggest that the Bitcoin halving event is likely to be correlated with price increases.
12 months after the first Bitcoin halving event in 2012, the price of Bitcoin reached an all-time high of $1,000. After the 2016 halvening event, prices stood tall at $19,000 in 2017.
While the halvening event of 2020 could have a significant effect on the future price of Bitcoin, there are other factors that could also have significant influence on the price of Bitcoin. These factors may contribute to the increase or decrease in the price of Bitcoin.
Market rules are clear that supply and demand define the market. Fluctuations in demand may result from changes in sentiment caused by various factors. As demand for Bitcoin fluctuates, prices can be significantly affected. They may, as a result of sharp changes in market sentiment, become too volatile for short-term investment- scaring weak hands away from the market.
What the Future Holds
Laws and regulations could have a significant effect on how Bitcoin is perceived. There are private cryptocurrencies which may be presented as a better alternative to Bitcoin during this period. Many states are already creating regulations and laws to determine how cryptocurrencies are taxed. How the market reacts to these laws and regulations could have a significant effect on how high demand is during the period.
You can prepare for the incoming Bitcoin halving by buying more Bitcoin. As always you should buy Bitcoin in proportion to your risk appetite. The cryptocurrency has achieved growth like never before. Despite its increasing prices, it pays to be cautiously optimistic with respect to fundamental analysis carried out with respect to the cryptocurrency.
You can take a position on Bitcoin based on your expectations of incoming prices for the cryptocurrency. The cryptocurrency may be subject to price hikes as anticipation for its post-halvening price increase contributes to its rising value.
