What is the Bitcoin halving?
The Bitcoin halving is when its block rewards are cut in half. When this happens, new Bitcoin is only created half as fast as before. This makes it scarcer and theoretically more valuable.
This is a regular occurrence that happens on a schedule that’s built into Bitcoin’s programming. It happens every 210,000 blocks. The first was in 2012, the second in 2016 and the third is expected to occur around May 20, 2020, when the Bitcoin network reaches block number 630,000.
|The first halving||The second halving||The third halving|
|November 28, 2012||July 9, 2016||May 20, 2020 (estimated)|
|50 BTC to 25 BTC||25 BTC to 12.5 BTC||12.5 BTC to 6.25 BTC|
How does the Bitcoin halving work?
Each halving sharply reduces Bitcoin’s inflation rate. This halving process is what gives Bitcoin its distinctive supply curve.
It works by reducing the amount of new Bitcoin that miners earn from finding a block on the Bitcoin blockchain, with the overall effect of reducing Bitcoin’s inflation rate.
Why is the halving important?
The halving is important for Bitcoin-watchers, because it may affect Bitcoin prices.
It’s believed to affect prices because it reduces Bitcoin’s inflation rate, which makes it more scarce and theoretically more valuable. Bitcoin’s annual inflation rate is currently around 4%, but after the next halving it will drop to around 2%.
Why is there a Bitcoin halving?
Bitcoin was intended to become increasingly scarce over time, specifically for the purpose of retaining monetary value. It was designed this way because the functionality of the Bitcoin network depends on the coin retaining its value.
The regular halvings are designed to support this by consistently reducing the supply of Bitcoin.
Will Bitcoin prices rise because of the halving?
It’s not possible to say with certainty what Bitcoin prices will do in the future, but if you subscribe to the theory that Bitcoin’s value is based on supply and demand, then it stands to reason that limiting the supply would correspond with a price rise.
Historically, Bitcoin prices have enjoyed brief rises prior to the halving from people trading on the anticipation, then longer, larger rises afterwards, as the additional scarcity does its part.
The first halving: November 28, 2012
The first Bitcoin halving was in November 2012 and Bitcoin prices steadily rallied in the lead-up. BTC prices were less than $4 at the start of the year and hit $13 by the end.
To date, that was the last time anyone could buy Bitcoin for less than $13.
Sentiment ran high through November as the first ever Bitcoin halving approached and prices steadily increased throughout November in anticipation of the first halving. Bitcoin enthusiasts threw halving parties and people watched to see what it would do to the prices.
The impact was substantial and the halving clearly had a major impact on how people perceived the value of a Bitcoin.
The second halving: July 9, 2016
The second halving, on July 9, 2016, was also preceded by high volumes and enthusiastic trading. The market impact of the event is clearly visible.
That price slump after the second halving was people’s last chance, to date, to buy Bitcoin for less than $600.
This time anticipation peaked a month before the event, resulting in a sell-off and then an eventual run-up towards the end of the year.
In contrast to the parties and enthusiasm of the first halving, market-watchers were more practical and jaded this time around. The general consensus seemed to be that Bitcoin had peaked at $750 and that anyone hoping for major results from the second halving would be disappointed.
But six months later Bitcoin was nearing $1,000.
The third halving: May 20, 2020
May 2019 was a good month for Bitcoin prices. It started at around $5,000 and finished at $8,500. June replicated the feat, taking Bitcoin up to $14,000 before it pulled back.
It’s not possible to say whether this is pent-up anticipation for the next halving, but it’s clear that each of Bitcoin’s halvings has resulted in it settling into new price tiers. Each Bitcoin halving to date has had a significant impact on Bitcoin and a lot of people are expecting the next one to do the same.
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