Basically Bitcoin halving is an event that halves(reduces in half) the rate at which new bitcoins are created. It occurs once in four years. More specifically, the protocol cuts the block reward in half. So every time a bitcoin halving occurs, miners begin receiving 50% less BTC for verifying transactions.
When Bitcoin launched, miners were receiving 50 BTC per block reward. After the next halving in 2012, block rewards reduced to 25BTC.
Same thing happened in 2016. The rewards reduced to 12.5BTC. The next halving is scheduled to happen in May this year and as expected block rewards will fall to 6.25BTC.
I will not go into the reason why the bitcoin protocol was designed to undergo halving. That's a topic for another day.
The average "crypto-person" is only concerned about it's implication on the price of bitcoin.
Historically, the price of Bitcoin has always gone up following a halving, but it ultimately depends on the demand/supply ratio.
Essentially, halving cuts down the supply of BTC, make it more scarce. If the demand remains constant or increases, the price is likely to increase.
There are also some historical precedents. On Nov. 28 2012, the day of Bitcoin's first halving, the price rose from $11 to $12.
This was a very big leap for Bitcoin as at then(considering the fact that it's demand wasn't as high as it is today. Moving from $11 to $12 was like the equivalent of moving from $1100 to $1200$).
Bitcoin's price continued to climb through out the next year, reaching a whooping $1038 in Nov. 28 2013.
Roughly four years later, about a month before the halving, the price increased again. Also after the halving in 2016, BTC rose to about $2560 in less than a year.
Will the pattern continue this year?
Skeptics believe that the halving has already been priced in (remember this year's epic, but short-lived systematic price increase?)
Moreover, the industry has drastically evolved in the last four years, as cryptocurrencies - and bitcoin in particular - became an essential part of mainstream hype. Still, some people might be tempted to take the chance, especially given the previous patterns exhibited around bitcoin halvings.
Consequently, if history repeats itself and price starts pumping in April, even more traders might start buying bitcoin out of a fear of missing out, thus stimulating the demand, and ultimately, the price.
But there are two factors that should be considered in predicting the pattern for 2020's halving.
- There's a global pandemic currently
- People can now trade Bitcoin with futures trading
This article is getting too long, so I'm going to cut it here.
Tomorrow I'll talk about the role of both factors in determining the price direction of bitcoin before and after the halving.