While it is difficult to ignore the major news engulfing the planet at this moment in time, sometimes it is a good idea to take our minds off by looking at some of the news making waves in the crypto world. Instead of reading about new cases, death rates, curves and recoveries, it can be nice to think of different figures and statistics for a little while. One bit of news, in particular, has left many licking their lips in the hope it could result in a new cryptocurrency market bull run.
The halving of Bitcoin is expected to happen in the middle of May with many analysts believing that this event will spark some much needed forward momentum in the cryptocurrency markets. So what exactly is the Bitcoin halving and what effects can it have on the cryptocurrency markets?
Bitcoin Halving Explained
The Bitcoin blockchain will produce a new number of Bitcoins every ten minutes. When Bitcoin was first established, it would produce 50 new Bitcoins for the first four years. Then it experienced its first ‘Halving’ in 2012 which cut that number in half to 25 every 10 minutes. 2016 saw that number cut once more to 12.5 and now, we are just over 30 days away from the number of Bitcoin being produced to just 6.5 every ten minutes.
This will carry on until 2140 when by that time, there will be the full and total number of 21 million Bitcoins in circulation with no more created. With each halving reducing the number of Bitcoins being created, Bitcoin miners will earn less for doing the same amount of work as before. Large mining companies have survived this before as they generally sell enough of their portfolios to get them through the early stages of the halving before Bitcoin should then see an increase in value to offset those lower mining revenues.
What Could This Mean for Bitcoin and the Cryptocurrency Market?
Well, we are not really going to know until it happens. Many people believe that with fewer Bitcoins being created, it will increase their value as they become rarer. This could then create a bull run on the value of BTC which as we know, then has a direct on the value of cryptocurrencies as a whole.
Some analysts have even gone as far to suggest that Bitcoin could soar to values that could even quadruple the $20,000 previous high that Bitcoin was valued at a few years ago. The stock-to-ratio of BTC will drop to similar levels as that of gold and therefore dramatically increase the market value of the worlds leading cryptocurrency.
While many will indeed hope that this is what the halving will lead to, there are some that are not convinced it will. Some analysts have actually claimed that the opposite will happen with the market turning bearish. Their main logic to this theory is that because Bitcoins inflation is cut in half and there are few coins to mine, that Bitcoin miners themselves will struggle and resort to selling their holdings to stay afloat. As we know, that would indeed lower the value of Bitcoin.
They may have a point too, in the following days of the last halving back in 2016, BTC actually lost close to a third of its value. Miners were thought to be among those selling off BTC for the reasons above. The only people to benefit in that scenario were the short-term traders who were playing the reducing markets to their favour.
You then have a third prediction that absolutely nothing will happen at all. Markets will not react in either direction. Peter Brandt is one such analyst that believes that others have overhyped the whole halving. As you can see from his tweet below, he believes that the reduction in mined BTC going forward will be a tiny percent of the actual supply in the market and will have minimal effect.
Which Camp do You Fall Into?
It is difficult to argue with the thought process of each analyst but we will only find out who has it right once the halving occurs. We also have to take into account real-life events that are occurring right now. How will this affect the cryptocurrency markets during the halving? Will more traders be at home trying to make their bucks from the cryptomarkets? Will some that are facing tighter times decide to sell chunks of their portfolios to get them through the pandemic?
We will all just have to wait and see but we are siding with the possible bull run as historically, halvings have led to them previously. We just hope that the coronavirus pandemic does not have too much of a negative effect.