With Bitcoin on a rally up, many are pointing to the next halving, which is planned for May 12 as the underlying reason. It is also not unfair. The precedent shows that the price of Bitcoin (BTC) usually ends after halving, although it takes several months.
The halving was programmed into the Bitcoin source code from the start, as Satoshi Nakamoto specified that only 21 million BTC would be spent. The block reward is halved every 210,000 blocks. Therefore, the miners in the 2009 Genesis block received 50 BTC as a reward. This decreased to 25 BTC in 2012 and to 12.5 BTC in 2016. Now the miners’ rewards are halved again.
After the first halving, the price rose from $ 12 in November 2012 to a high of $ 1,100 in November 2013. Similarly, the second halving 11 months later showed a sharp increase from around $ 650 in July 2016 to over $ 2,500 in May 2017. The most direct interpretation of this is that Halving introduces a supply restriction that boosts demand.
However, the last halving occurred in 2016, before the obsession with the initial delivery of coins, before the development of crypto derivatives, and long before the corona virus began to disrupt the global economy. So, considering that Rumor has it that Bitcoin price correlates strongly with the network hash rateCan previous halving be an indication of what to expect next?
Downward pressure on mining profitability
The hash rate is an indicator that should be considered in the near halving period. A higher hash rate indicates higher computing power in the network or, in other words, a high level of commitment by the miners.
The hash rate near previous halves tended to show similar price trends. In the halving of 2016, for example, the hash rate increased more strongly a year later, which indicates this Other miners were attracted to Bitcoin’s price hike.
However, the previous diagram shows that There was no significant drop in the hash rate after halving 2016. In fact, the hash rate remained stable immediately after halving, despite the apparent drop in mining profitability.
Mining premiums are only one component of the overall profitability of mining. Transaction fees are another way for miners to generate revenue, and if we take the transaction fees by the last cut in half, there was no significant change after the event. Like price and hash rate, transaction fees rose 11 months after the last mining event in 2016.
Related: Looking back at past halving: Assuming an immediate rise in the Bitcoin price fails
Lennix Lai, Chief Financial Markets Officer at OKEx, told Cointelegraph that miners may be put off by the prospect of falling rewards and can only earn money with transaction fees:
“With the expected cut in block rewards, I think he willThe industry would initially question the basic assumption of halving if the transaction fees alone were enough to support the entire Bitcoin network. “
Is Bitcoin’s hash rate the key indicator?
There are more immediate precedents for halvingSince Bitcoin Cash (BCH) and Bitcoin SV (BSV) recently experienced halving events, both immediately dropped to the hash rate. Diego Gutiérrez Zaldivar, the CEO of IOVlabs, which manages the RSK network, told Cointelegraph that there is an explanation:
“These networks share the hashing algorithm with Bitcoin, so the hash performance keeps moving between them. If the two smaller networks reduce their mining rewards, miners are likely to have moved to BTC to find more profitable land. Bitcoin halving occurs, there is no such alternative network, so miners whose operating costs are higher than the price of BTC are likely to drop completely. “
Does this mean that, unlike previous halving, Bitcoin’s network hash rate will decrease after halving? Zaldivar does not believe this and says: “Bitcoin has about 50 times the financial security of Bitcoin Cash and the economic security of Bitcoin SV Bitcoin remains the most secure decentralized network in the world even if the hash rate drops sharplyJoel Edgerton, bitFlyer’s chief operating officer, agreed that there is a risk for smaller miners:
“I think miners will have a hard time with weaker, less capitalized miners giving up their businesses. Their sales mix will move more towards transaction rates, which has interesting implications and could open up interesting opportunities for companies using Bitcoin Processing speed of transactions. “
Related: The survival of miners after halving compared to the hash rate
Bitcoin halving is unlikely to follow the examples of BCH and BSV. As Zaldivar emphasized, the Bitcoin network is initially much more secure. Second, many Cointelegraph experts stated that Bitcoin is currently in a stable position due to unprecedented current economic conditions.
Central banks are using quantitative easing to inject fiat money into their economies, which will ultimately lead to inflation. Edgerton pointed this out to Cointelegraph Many bought Bitcoin during the recent collapseand therefore the current halving can be different:
“The critical differentiator in this halving is this coincides with a massive increase in the money supplyhow governments are responding to the economic impact of the COVID-19 health crisis. Since Bitcoin was born after the recent economic crisis, this plays very well with its strengths as a store of value. “
Blockstream’s Chief Strategy Officer Samson Mow agreed and said to Cointelegraph: “This bitcoin halving is unique due to the unprecedented amount of money that is printed. This is very bullish for Bitcoin. “He continued:
“I think we haven’t seen the full extent of COVID-19’s economic uncertainty and impact on Bitcoin yet. The average person is just beginning to realize that Bitcoin is the only real haven for their money.”
In addition to COVID-19, there are other factors that affect this. Bitcoin differs from many other cryptocurrencies due to the huge derivatives market. Meltem Demirors, Coinshares’ Chief Strategy Officer warnedPreviously, this ability to speculate on the price of Bitcoin without touching the underlying asset suggests that this halving is different from the others.
A journey into the unknown
In a nutshell, Too many factors are at stake with this halving enough to make a fair comparison to the two previous events, as almost all variables have changed, including the miners and the hash rate they generated. The presence of derivatives and the enormously excessive size of the Bitcoin market and network since 2016 are significant enough.
However, the COVID-19 crisis and the associated economic uncertainty are unprecedented for assets like Bitcoin. In general, most experts seem to think that the prospects for the network and the ecosystem in general are encouraging. So the best advice for this halving seems to be to sit back and enjoy the ride.
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