Author: JMJ
Data: Blockchain.com (valid as of UTC 1:34 11 May 2020, written 5 hours before the BTC Halving; stats in fluctuation)
Image: Getty Images
The rise of cryptocurrency outside the traditional banking sector has undoubtedly created a new generation of millionaires throughout the world and many predict that new ranks of crypto-savvy individuals will soon join the ranks of the wealthy by these means. In preparation for the third Bitcoin Halving, Crypto enthusiasts throughout the world have been diversifying the portfolios, setting up wallets (such as CoolWallet S, Ledger), and glued to exchange platforms market statistics such as those provided by Coinbase, Blockchain.com, and KuCoin. The third halving is predicted to take place on the 11 of May 2020 and the individuals, economists, and governments alike await to see what happens next.
What is "The Halving," and why is it so crucial to the price value of BTC?
Once every 4 years, the rate at which new bitcoins are minted into existence gets cut in half. Correspondingly, the inflation rate also gets cut in half. The system is designed this way to slow the inflation of the currency. As the Circulated Supply is dramatically reduced, Bitcoin miners must now work twice as hard to meet the demand of the market users, individual crypto owners. Price adjusts upward to reflect the fact that more people want something that is now more scarce. The maximum supply of Bitcoin (the total number that can be mined) is 21 million bitcoins. 85% of those that will ever be in existence have already been mined. Of those remaining, 656,000 will be mined within the next four years.
Miners are incentivized to continue solving the algorithms that ‘produce’ Bitcoin by the prospects of earning coins themselves for every 50 coins they mine. Essentially after each halving, Miners will earn half as much BTC per block every day meaning that it will become twice as difficult for them to meet the current market demand. As it becomes increasingly harder to mine these every day, it also becomes increasingly scarce. And as we all know, the scarcer that something is the greater it is valued. Crypto is no exception to this rule.
Past Performance: The Economic Environment and Outcomes of Previous Bitcoin Halvings
What was happening in the economic world during the previous three Halvings? Today, COVID-19 presents an exceptional crisis, but the economic conditions of the last decade have been no picnic. The first BTC Halving occurred on the 28 of November 2012 amidst the infamous EU debt crisis that necessitated a bitter round of bailouts in Greece, Spain, and Cyprus. The term “Moral Hazard” entered the collective politico-economic lexicon and became synonymous with fiscal and monetary policy actions taken explicitly for short-term goals. The European Central Bank gradually cut rates, and some countries even witnessed negative rates (such as Japan). The EU even created a permanent bailout fund to rescue its economically unstable members.
The second halving took place on the 9th of July 2016 amidst the Chinese stock market crash, the beginning of the Brexit discussion, massive cuts in OPEC production; deflation, and the Brazilian Economic Crisis among other catastrophes. As we approach the third Halving today, 11 May 2020 (UTC), COVID-19 has upended all traditional economic activity, the US Federal Reserve slashed interest rates to near zero.
“After three weeks of chaotic drops in global stock markets and alarming signs of dysfunction in the US government bond market, the Fed stepped in with tools it has not used since the financial crisis” (Financial Times, 2020).
The fed has also launched a seemingly unlimited QE program (Market Watch, 2020). Essentially, this means that the Federal Reserve is buying junk debt (debt that is not going to get repaid and is projected to default) because the market simply cannot weather it. The thorn of persistent global economic crisis has played a role in driving market demand towards digital alternatives. Layered on top of this, Halving sends this demand (and its price reflections) skyward. Bitcoin saw over 8000% growth from the day of its first halving. The last Halving brought with it a 3,000 % value increase. What is in store for the third round?
Layered in uncertainty is also a great deal of anticipation. The very architecture of the financial world is reshaping as the tectonic plates of crisis, government policy, and digital developments bend the bedrock. As many have been attentively watching the crypto market swing over the last 48 hours, the moving trend is undeniably gaining value. This is particularly prominent amongst many individuals who have simply lost hope in the traditional banking system and who are watching the value of their earnings (if they are lucky enough to have a job at this time), salaries, and savings deflate. Crypto offers an alternative, a complex and risk-laden alternative, but an alternative still.
Predictions for 2021?
Some (extremely optimistic) predictions indicate that BTC could hit 500k as early as August 2021, however, others take a much more conservative outlook estimating that it will hover around 200,000 USD. Others still, relay that such postulations are a stretch, and that value will accumulate more modestly. Even so, the plausible prospect of a BTC living in the realm of hundreds of thousands of dollars at some point in the future is, for many, enough for excitement. However, while these predictions are based on educated speculations, they are speculations, nonetheless. Still, even in the midst of COVID-19, BTC’s lowest value (12 March 2020, $3,858 USD per BTC) did not sink below its trending average prior to the second BTC halving. For many, the Halving is not a question of “will the BTC value go up?” but “How much will it rise?”
Within the last three months, BTC has both hit its most recent low (less than 4,000 USD) and about-faced to surpass the 10,000 USD threshold that analysts were predicting prior to the onset of the pandemic. In spite of the extreme volatility, the fact that these estimations have held constant even in the wake of the global pandemic and economic crisis lends credibility to the notion that we may not see BTC as low as 10,000 again for a very long time, if ever. Moving into the final moments--just 5 hours before the Halving--the market for Bitcoin (BTC) and Altcoins like Ethereum, Tezos (XTZ), Cosmos (ATOM), Dash (DASH), EOS, Augur (REP, Kyber Network (KNC), Litecoin (LTC), and others are climbing ever upward.