In may 2020, Bitcoin will experience its third seminal block reward halving, which means that the Bitcoin blockchain is set to reduce the amount paid to miners per block to 6.25 BTC. This means, that fewer BTC will be released to the eco-system everytime a new block is mined and will result in a lower supply of Bitcoins. It is a milestone that is easy to see coming because it happens every four years and has happened twice before.
Why is Bitcoin Halving its block reward?
As with every "money" that we know, there is a monetary policy arttached to it in order to control supply and demand. This is what central banks and governments do when they control supply and demand for its local currency. For example, in times when the world is experiencing a crisis like we have now with the Covid-19 pandemic, central banks and governement print money in order to keep the economy flowing. As a result, inflation appears due to more supply and the money lose value in terms of purchasing power.
With Bitcoin, its pseudonymous creater, Satoshi Nakamoto, thought about another way to control money supply and created a new monetary policy to the Bitcoin blockchain. Bitcoin is a bit different. For one, the supply schedule is all but set in stone. Unlike the monetary policy of state-issued currencies, which happens through political processes and human institutions Bitcoin's monetary policy is written into code shared accross the network, which makes it nearly impossible to change. Unlike most national currencies we know, Bitcoin was designed with a fixed supply and a predictable inflation schedule. There will only ever be 21 million bitcoins. This predetermined number makes Bitcoin scarce and this scarcity alongside their utility creates the market value. The Bitcoin halving is the unique aspect of Bitcoin, where the block reward decreases over time and no one can ever change this scenario.
How does the halving influence the Bitcoin price?
The halving is what attract most attention everytime it happens, because many believe it will lead to a price increase. So far, the Bitcoin blockchain has seen two halvings, which we can look to as precedent. In 2012, halving provided the first demonstration of how markets would respond to Nakamoto's unique supply schedule. 365 days before the halving, Bitcoin saw a price increase of +385%. 365 days after the halving, Bitcoin was increased with amazing +8,069% to a price of $1,007.39. In 2016, the second halving was highly anticipated after what the first halving demonstrated. 365 days before the second halving, Bitcoin saw an increase of +142% and 365 days after the halving, Bitcoin gained +284%. So, with a little background information, investors and traders are very curious about the third halving and what it will bring.
With halving coming up in less than three weeks, Bitcoin could be a very interesting asset to look at as an investor. In an interview on sunday, Saifedean Ammouns, author of the popular book "The Bitcoin Standard" made a simple argument for the halving's positive impact on the Bitcoin price.
"Once the flow of new Bitcoins halves, he argued, demand could theoretically also halve and still keep BTC/USD at its current level".
PlanB, the analyst behind the celebrated stock-to-flow price model, meanwhile sticks by its latest forecast - By the end of 2020, Bitcoin should trade around $30,000.
At Evonax Cryptocurrency Exchange , we are preparing for the upcoming halving and is ready to support all our clients in their trades. We have made it easy to convert Litecoin, Bitcoin Cash, Bitcoin SV, Dash, Zcash, Monero, Ethereum, Bitcoin Gold and Dogecoin into Bitcoin.