Happy New Year everybody. 2020 – a special year indeed: The year of the Bitcoin Halvening
Bitcoin ‘Halvening’ Explained
For those of you that don’t know, there can only ever be 21 million bitcoins. At the moment there are about 18 million in existence and after every block is added to the blockchain, 12.5 bitcoins are created.
The newly minted bitcoins go to the miners, whose computing power competes against hundreds of thousands of other miners for the ‘block reward’, every 10 minutes. The block reward is cut in half every four years and this is what is colloquially known as the ‘halvening’.
The halvening is predetermined and will continue to drop by 50% every 210,000 blocks until the last fraction of bitcoin is mined in around 2140. This one is set to take place around May 20th this year and once it does there will only be 6.25 new bitcoins for every block.
There have been 2 previous halvenings: the first one was in November 2012 when the block reward dropped from 50 to 25, and the last halvening was in July 2016 when the minting dropped from 25 to 12.5.
Why the significance?
With the supply dropping by 50%, Economics 101 tells us that when demand outstrips supply the value of an asset, especially one with diminishing scarcity, can only go one way: up.
In previous halvenings you could have made an astonishing 11,000% at the right time before the 2012 event, and a not so shabby 7,000% if your timing around the 2016 reward amputation was sound.
Of course, Bitcoin was a completely different concept back then. The market cap was minuscule compared to today. The first halvening was an unknown event. Nobody knew what to expect but the price rocketed about a year afterwards. The last one had the euphoria of Ethereum and the ICO craze to aid it.
Aren’t People Interested in Bitcoin Anymore?
This time, there seems to be little faith in the market. Then again, the people who are still involved are holders of last resort. They will hold onto their bitcoins for dear life. And with public awareness and institutional interest at an all time high, Bitcoin’s brand image has never been as strong.
Most miners today sell most of their bitcoins to pay for electricity. So, when the block reward is trimmed in two and the cost of production automatically rises, miners will have to sell at a loss or wait for the price to rise.
Some will take the loss but most will probably wait. This will add to the supply drain and should have an effect on the price.
Institutions are getting involved, and legacy finance giants Fidelity are even mining. More of the elites are starting to realise the possibilities of Bitcoin and are wanting to buy it.
Upmarket London brokers The Dadiani Syndicate claims one of their wealthy clients wants to acquire 25% of all newly created Bitcoin. Billionaires and legendary investors Tim Draper and Mike Novogratz are massively bullish on Bitcoin.
The thing is not whether the price will go up, it’s whether the money men can keep it down long enough for them to accumulate as much as they want.
After the halvening, the increase in supply of Bitcoin will drop below that of gold’s for the first time ever.
Many liken the two. Like gold, Bitcoin is s a store of value, but copious amounts of gold could theoretically be found tomorrow. With Bitcoin and its algorithmically programmed halvenings, we know exactly how many bitcoins there will be at any time in the future.
I don’t know if the price of Bitcoin will moon before the halvening, or even after it. Nothing is certain, and price manipulation is at play. But that game is very risky with an asset that doesn’t rest.
The market is 24/7/365 and the scarcer Bitcoin gets, it seems inevitable that the price will rocket without notice. For me, I’ll quietly keep accumulating in readiness for the next take off.
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