What is the Bitcoin Halving?
The Bitcoin halving or ‘halvening’ is an important event in Bitcoin’s timeline. It is when the block rewards that miners receive from mining the blockchain gets cut down by half. It occurs every 210,000 blocks and so far it has happened approximately every 4 years.
The last Bitcoin halving happened on the 11th May 2020. As a result the amount of Bitcoin mined every 10 minutes dropped from 12.5BTC to 6.25BTC.
The halving has a big impact on the Bitcoin price. In fact the halving is creating a pattern of booms and busts in Bitcoin based around this cycle. For you to fully understand the impact of the halving we need to cover some important basics of Bitcoin beforehand. So you will better understand why and how others have taken advantage of it.
Of course you should note that this article is for educational purposes only. Hence we are not recommending for you to buy Bitcoin. You should ask your financial advisor for financial advice and verify the content of this article.
A Finite Amount of Bitcoin
Satoshi Nakamoto developed Bitcoin to compete as a superior medium of exchange that is better than fiat. To clarify he wanted Bitcoin to be a stable currency anchored on solid monetary principles. Hence a form of sound money.
So Satoshi took some lessons from history. The monies that worked the best in the past were the ones that no central banker could print. These types of money brought wealth and prosperity to the communities or societies that used them. They were the ones that had a fixed supply like for example gold.
Gold’s supply is based on what is already out of the ground. Additionally what miners continuously dig out of the ground.
However for Bitcoin there is a maximum supply limit of 21 million coins that can ever exist. So far miners have already mined most of the 21 million Bitcoins. Moreover Bitcoin’s blockchain is hard coded with this limit and no one can alter it.
In short, Bitcoin is a proof-of-work cryptocurrency so miners can mine Bitcoin from the blockchain. Miners are computers, but they are also called nodes. Since Bitcoin is a virtual currency this is the only way to mine it.
Miners get rewarded with Bitcoin when they correctly guess the ‘password’ to unlock a block. Once they win the Bitcoin they can then distribute the Bitcoin to the network. Anyone can buy Bitcoin from the miners.
Bitcoin Halving Effect on Miners
The mining reward creates an incentive for miners to keep the network going. Most importantly because mining uses up a lot of energy. So they can sell the Bitcoin they mined to cover their costs and make a profit.
Miners play an important role by mining because they maintain and secure the blockchain. However because the block rewards go down at the time of the halving some miners get priced out. So unfortunately the network at the time of the halving becomes slightly less secure.
Hence it makes it a more vulnerable period for Bitcoin to suffer a 51% attack. However since Bitcoin has such a large network it is highly improbably that an attack would succeed.
The Bitcoin Halving
When Bitcoin was first launched miners received 50 Bitcoins as a block reward for mining. However as I mentioned before every 210,000 blocks the reward goes down by half.
So from 50 BTC it went down to 25 BTC, 12.5 BTC and then 6.25 BTC. In future it will continue this way so it will go down to 3.125 BTC, 1.5625 BTC, 0.78125 BTC, 0.390625 BTC etc. This will continue happening until there is no more Bitcoin left to mine.
Hence Bitcoin halving events will not happen anymore. This means that Bitcoin will have a total of 64 halving events. Initially the halvings were estimated to end in the year 2140. However since Bitcoin is mined by powerful ASIC miners that are getting more efficient it could happen much earlier.
So Bitcoin’s cycle according to price will change because Bitcoin halvings stop at that point. Albeit the cycle could change well before the end before there are no more Bitcoin halving events.
As for the miners they would need to shift from collecting mining rewards to relying on transaction fees. So they can continue to make money and sustain the network.
Bitcoin Halving Dates
|Halving||Date||Mined before halving||New amount mined per block|
|1st||28 November 2012||5,250,000 BTC||25|
|2nd||9 July 2016||2,625,000 BTC||12.5 BTC|
|3rd||11 May 2020||1,312,500 BTC||6.25 BTC|
The Next Bitcoin Halving
|Halving||Date||Mined before halving||New amount mined per block|
|4th||Estimated May 2024||656,250 BTC||3.125 BTC|
Why Is The Halving Important?
The Bitcoin halving event is important because:
1. The Reward For Mining Gets Reduced By Half
One of the most attractive attributes about Bitcoin is that it is scarce. There is only 21 million Bitcoins in total that are ever going to exist.
As a result of Bitcoin’s fixed supply you get price fluctuations based on basic principles of supply and demand. As the supply of Bitcoin in circulation decreases it becomes harder get hold. So if demand is still strong the price goes up.
It is one of the reasons why Bitcoin’s price keeps going up. Moreover why Bitcoin’s cycle has formed a pattern around the Bitcoin halving.
So even though miners collect less rewards which reduces their profit it still remains profitable for most. This is because by time the price of Bitcoin goes up.
Bitcoin’s scarcity works similarly to gold. It keeps getting harder to find gold deposits or extract them due to where the deposit is located. This makes it more scarce.
2. Bitcoin Has a Bull Run
So far every time there was a halving event, Bitcoin had a nice bull run. That is to say the price steadily climbed up over an extended period of time.
We can have a look at the previous halving event, which occurred on the 9th July 2016 as an example. Of course the same is happening now after the last halving on the 11th May 2020.
Taken from CoinMarketCap
The day before the halving happened which was the 8th July 2016, the BTC price was $644 in US dollars. The price of Bitcoin remained stable for several months. However the price slowly started climbing upwards until it went parabolic towards the peak.
The graph chart above shows the averages and not the highs of the day. It shows the price of Bitcoin went up to $18K on the 15th December 2017. However its peak was in fact on the 17th December 2017 at $20K.
Taken from CoinMarketCap
How to Take Advantage of The Bitcoin Halving
Historically there is a noticeable trend in the Bitcoin charts. Of course it is important to keep in mind that Bitcoin is still relatively new. So 3 cycles with some high and low point values do not make a trend per say. Ideally more data is needed.
To clarify this means that what has previously happened so far may not necessarily happen again. So it is important that we highlight again that this is not meant as investment advice.
As I mentioned earlier, every time a halving event occurred the price of Bitcoin has had a magnificent rise. In fact it increased its value more than 10 fold what it was worth at the time of the halving.
You can have a look to see it for yourself in the chart below. You should note that this chart is logarithmic and it has the price values on the right. Logarithmic means each value above the last is ten times greater than the previous value below it.
Bitcoin Halving Chart
Logarithmic chart sourced from Bitcoin charts
You can also see that the price action going up happens some time before the Bitcoin halving event. However there is not such a large price difference between the lowest price and the halving.
Bitcoin Highs and Lows and Their Percentage Increase and Decrease
|1st halving||28 November 2012||$10|
|Market top||30 November 2013||$1,130||11,200% increase|
|Market bottom||15 January 2015||$190||83% decrease|
|2nd halving||9 July 2016||$660|
|Market top||17 December 2017||$19,200||2800% increase|
|Market bottom||17 December 2018||$3,400||82% decrease|
|3rd halving||11 May 2020||$8,700|
This table data is based on averages of the days.
As you can see in the table, the price increase was 9300% the first time. The second time Bitcoin was up 2800%. The chart also looks like the price of bitcoin will stabilise by time. That is to say because the percentage increase is not going up as much as the previous time.
At this point, things are still looking promising for another good run up this time as well. The run up might not be as spectacular as the previous two, but nevertheless still significant.
The percentage decrease on the way down unfortunately is also mind blowing. Both times Bitcoin went down by just over 80%. With such large moves up and down some people have made a lot of money precisely because of the volatility.
Bitcoin Price Predictions
There are analysts that do price predictions and estimate roughly when the cycle top will happen. They usually use a bunch of different tools including chart patterns. As you would expect sometimes analysts get it right and other times wrong.
In fact even some major banks like Citibank and JP Morgan have issued some reports in the past. Over the long term they are thinking there is some great upside for Bitcoin.
You can have a look for yourself at what these banks and others are saying on the price predictions page. On this page you will find the price prediction and the link to the source to read the full article.
Some analysts also look at the amount of days between one event and another. However all you can see here is how the days between Bitcoin halving events seems like it is reducing slightly.
Additionally you should notice when the market tops happen. If you look carefully they are usually towards the end of November through till December.
Timings Between Halving Dates, Market Tops and Market Bottoms
|1st halving||28 November 2012|
|Market top||30 November 2013||367 days|
|Market bottom||15 January 2015||412 days|
|2nd halving||9 July 2016||542 days|
|Market top||17 December 2017||527 days|
|Market bottom||17 December 2018||366 days|
|3rd halving||11 May 2020||512 days|
The days listed are for the time between the date in the row above and the date in the row.
In short the Bitcoin halving is a really important event. So much so that it has significant ups and downs between the time of the halving and the market top. As a result a lot of people have made a lot of money because they noticed the pattern.
Even if investors were not spot on with their timing they would still have done very well. For example, if they buy and sell within months of the bottom and top. They would still have made good percentage gains. In fact there is no stock or any asset that comes close to such ridiculous percentage gains in history. Only Bitcoin has broken this record.
The best profit-maximizing strategy is to own the fastest horse.Paul Tudor Jones a large hedge-fund investor talking about Bitcoin
Additionally Bitcoin might not necessarily crash by 80% like last time after its peak. This is because by time Bitcoin should stabilise more and more. However by time we will know by how much. At this point no one knows for sure.
What is definite is why Bitcoin has value and why it is not at all likely to go to zero.
There is a good case for Bitcoin. In fact investors are saying this partly because central banks
There is a good case for Bitcoin outside the investment point of view and like an insurance ticket. In fact investors are saying this partly because central banks worldwide are debasing their currencies.
Hence Bitcoin will continue to do well. So if currencies fall, Bitcoin could act as a hedge to those that own it and offset the negative effects. You can read about what is inflation and what it could mean for investments.