Does the third half of bitcoin lead to a price explosion?

Bitcoin’s blockchain code states that Bitcoin halves every 210,000 blocks. The first two took place in 2012 and 2016 after Bitcoin’s launch in 2008. The next half is just around the corner – accurate calculations show that it will be May 11 this year. The last two times was a huge price increase. This time, however, experts disagree on whether there will be a price explosion or whether the expected increase has already been applied at the currently high rate. Either way, the entire financial world awaits the Bitcoin charts.

What is bitcoin halving anyway?

When Satoshi Nakamoto launched Bitcoin Blockchain twelve years ago, he set the maximum number of Bitcoins available at 21 million. At the time, however, these bitcoins did not hit the market at the same time: Bitcoin network users have to actively exploit to get the cryptocurrency, unless they simply want to buy the coins. They do mining with a lot of computing effort. As a reward for the effort Miner has to make to complete a new block, they receive a Block Reward. In principle, these are the bitcoins they found through mining.

For many miners, mining new bitcoins is a very lucrative source of income, even if they and their PCs have to do a lot to do it. For this reason, the difficulty of finding new coins continually increases. Nakamoto implemented this with an additional function when creating the bitcoins, otherwise all the bitcoins would be available and “out of stock” in no time. Bitcoin’s halving ensures that the block reward is halved after every 210,000 bitcoin blocks mined. At first, the reward was 50 BTC, the acronym for bitcoins, in 2016 it was 12.5 BTC. This year the reward will be cut in half to 6.25.

Why can halving be predicted so precisely on a date, even though it depends on the amount of bitcoins mined? This has to do with the fact that the reward is halved after every 210,000 bitcoins. When one block is completed every ten minutes, approximately 144 blocks are removed each day, this corresponds to a period of just under four years. Of course, this can change a bit depending on how intensely you are mining bitcoins. However, the closer the 210,000 bitcoin limit gets, the more accurate predictions are possible. The next halving is expected between April and June 2024. As this period approaches, a more accurate forecast is also possible here.

Why is it necessary to cut bitcoin in half?

Without Bitcoin’s halving, the full 21 million Bitcoins would be used up in no time. But that’s not the only reason for halving. Because Nakamoto also created bitcoins to create a decentralized, digital currency that is independent of governments and institutions. At the same time, however, he also wanted a construction that was safer and more stable than classic coins. The current monetary system consists of currencies that do not have a real counter value, the so-called fiat currencies. They are completely decoupled from the actual real value. In classical monetary policy, the economy can be influenced by the control of the money supply or demand. The increase in the money supply is said to increase consumption and, therefore, the country’s economic production in times of crisis. The negative of this? The money supply is extremely sensitive to inflation.

The situation is very different for gold, for example. Gold is, like bitcoins, limited, because gold mines cannot mine an infinite amount of precious metals per year. Therefore, gold inflation is constant compared to fiat currencies. Because there the price level increases above the average when the money supply increases. The Bitcoin digital currency has financial similarities to gold. Coin is a rare commodity that limits supply. Also, the coin must be actively mined, like gold. Given that there are fewer coins in circulation in bitcoin’s halving, experience has shown that the inflation rate also falls, this was already the case with the last two halves. That is why Bitcoin’s halving is as important to Bitcoin as a stable, secure, and future-oriented currency with a constant inflation rate.

What effects could bitcoin’s halving have?

Mining is very attractive because miners not only receive the block reward for successful completion, but also benefit from an additional transaction fee for each block of Bitcoin. Professional mining farms and pools have dominated the competition for a few years, leading many private miners to ruin. Because even the dynamic hash rate, the computing power unit in the Bitcoin network, adapts to the available computing power every 2016 blocks, that is, approximately every fifteen days. This makes mining increasingly expensive, and energy costs in particular continue to rise. For the virtual currency business to remain profitable, the price must be adjusted if the block reward is halved every four years.

An example of calculation: suppose a Bitcoin costs CHF 8,000. The cost to obtain a Bitcoin block is CHF 80,000. The current block reward of 12.5 BTC throws the miner with CHF 100,000, which corresponds to a net profit of CHF 20,000. If the reward is halved and there is no price adjustment, the miner would suddenly lose 30,000 francs. In order to work as profitably as before Bitcoin’s halving, it would be necessary to double the price to CHF 16,000.

The experience of the previous halves shows that prices will rise. But experts do not share this opinion, at least not all. Some see a danger in the fact that Bitcoin has become the mainstream and therefore the framework conditions have changed. Price-affecting bitcoin derivatives are viewed by others as a negative influence. The current situation on the stock market due to the corona virus may also have a negative impact on the reduction in the middle of this year. One of the biggest uncertainties is uncertainty about whether the effects of the upcoming halving have already been factored into Bitcoin’s price. Many investors, wisely anticipating the halving event, have started investing in the leading cryptocurrency, which may have affected the price.

Binance CEO Changpeng Zhao believes the potential for halving has not yet been valued. In an interview with “BlockTV”, he believed that demand would continue to grow, but that supply would decrease. According to Zhao, this will lead to a massive increase in prices. This statement is supported by Tom Lee, analyst at Fundstrat Global Advisors. He also believes that bitcoins still have enormous upside potential. He believes the price will rise 200 percent or more after the halving.

What happens after May 11, 2020?

The fact is, Bitcoin remains the top cryptocurrency. Even under current circumstances, this is unlikely to change. The last two halves were associated with massive price increases. Even if everything “goes well,” halving is anything but a peanut event for the industry leader of all cryptocurrencies. Because even then, the price increase will have a big impact on other cryptos and on the entire financial market. After all, all good things come in three. Who knows if the third time will end positively and the price will go up? It doesn’t matter which direction everything is going – Bitcoin will be something to talk about in the coming weeks.

What is guaranteed is an increase in price. Otherwise, both individuals and mining farms will stop working. The current decline in confidence in central banks definitely has a positive impact on the course. Investors are looking for alternative assets, with Bitcoin high in price. Even if industry professionals disagree, there is a positive basic tenor. The Bitcoin rate will break records in the coming weeks and months and will skyrocket when it comes to most of the financial world. If you want to enter the Bitcoin market, you must do it as soon as possible. Because with a high probability, everything will be very expensive from mid-May. Chances are this time everything will be different, but everything is possible.

If you want to read more articles on cryptocurrencies and Bitcoin news, follow me by clicking the “Follow Author” button. And if you want to get bitcoins before halving, I highly recommend the Ledger Nano S as a wallet. Colleague Raphael Rotondari has already tried the X version and was delighted. If the deadline to buy Bitcoin expires, we will halve the price of the Ledger Nano S until May 18, 2020 after the official halving on May 11.