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Preparing for “The Halvening”: What You Need to Know
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The next Bitcoin halving (or “halvening”) is set to occur on Tuesday May 12th, 2020 (ETA 5am JST), and has been long the source of much debate among cryptocurrency enthusiasts.
So what exactly is the halvening, and what does it mean for crypto traders?
What is the halvening?
Bitcoin (BTC) has a built-in feature where after 210,000 blocks are mined, the reward of newly minted BTC given to miners is halved. This re-occurs every 210,000 blocks, which works out to roughly every four years.
Bitcoin has undergone halving twice already, once in November 2012, and the second in July 2016. The original reward for successfully mining a block was 50 BTC, which was halved to 25, then 12.5, and with the upcoming halving will be further reduced to 6.25 BTC. This has an anti-inflationary effect – mining rewards will continue to decrease until the supply of BTC approaches 21 million – and after that point, there will be no new BTC issued.
The supply is predicted to reach 21 million around the year 2140.
What will the effect of the halvening be?
No one can guess exactly what, if anything, will happen as a result of the new halvening. Bitcoin did undergo tremendous price increases within the years after the last two halvenings, but there certainly isn’t enough data to be confident that the same will necessarily occur now – especially because the knowledge, awareness and activity surrounding BTC and the cryptocurrency space are far beyond where those factors lay in 2012 or even 2016.
The halvening will certainly result in reduced income for miners, who could possibly choose to increase transaction fees to counterbalance their diminished mining rewards. However, the reduced profitability may mean more miners dropping out of the network mining pool, thus making the remaining miners more likely to successfully mine blocks and reap more rewards.
Will there be price action on the day?
One line of thinking goes that since demand for BTC is generally predicted to increase and new supply will decrease, the value of BTC will thus rise – but it’s not usually so easy to predict a crypto market by such simple analysis, especially in the short term. Others argue that the halvening is already priced into BTC’s current value which doesn’t bode so well for upward price action. It’s worth noting that in 2016 the price of BTC dipped by 10% on the day of the halvening, though it soon recovered.
On the other hand, if you’re a long-term BTC believer, the halvening may prove to be nothing more than another step along BTC’s path back towards $20,000 and beyond.
When in doubt, zoom out – there’s no simple answer to the question of the halvening’s effects, but a steady, rational trader will stand to benefit.