Impact of the Bitcoin Halving

The biggest impact of Bitcoin’s halving is its price, which is also closely concerned by many investors. According to the relationship between supply and demand, if demand increases and supply decreases, prices will rise. If demand remains the same or increases, then after the supply of Bitcoin decreases, its price is bound to rise. At present, only 1,800 Bitcoins can be produced per day, which will be 900 after the halving. It is also twice as difficult for miners to produce Bitcoins. In this process, the inflation rate has dropped to 1.73%, lower than the current 3.93%, and its annual inflation rate will be lower than that of gold for the first time. However, the fluctuation of Bitcoin’s price doesn’t follow an ideal model but is affected by many factors.

In the past two Bitcoin halving events, the price trend showed an opposite trend in the short term. When the first Bitcoin halving occurred in 2012, its price was $12.6, and it climbed 7% in the following month, but fell by 10% during the second halving in 2016. Six months later, the price increased by 944% during the first halving and 38% after the second halving six months later.

Lennard Neo, director of Singapore’s Bitcoin index fund provider Stack, said that although many people believe that there will be a sharp increase in the price of Bitcoin after the halving, in fact, there will be no significant impact on the price in the short term. At the same time, as the incentives for miners are reduced, miners and the market need to be rebalanced, so price fluctuations will lag behind. The rebalancing between miners and the market may take 6-9 months, and Bitcoin may appreciate in value during this period.

In fact, the Bitcoin halving will have a longer impact on the price than expected. The price of Bitcoin reached a record high in the 12th month after the first halving in 2012, and it reached a new high in the 18th month after the second halving in 2016. According to the prediction of Jose Llisterri, founder of the cryptocurrency derivatives exchange Interdax, the Bitcoin price cycle is getting longer. After the third Bitcoin halving, it may take 18-24 months to see a new high, which means that the price of Bitcoin will peak between October 2021 and May 2022.

However, it is worth noting that the price of Bitcoins would rise in advance before the first two halvings. But this time there was no premature rise. In addition to the sudden outbreak of COVID-19, there are other factors. It also means that the situation after the Bitcoin halving is difficult to predict, and the experience of the first two times cannot be used as a reliable reference.

In the past ten years, people’s views on Bitcoin have changed a lot. In the early days, Bitcoin was unknown, and its usage rate was generally low, so when the first halving was made, supply was less than demand and the price rose. After the second halving, the market value of Bitcoin hovered around US$10.5 billion, with only 8.95 million Bitcoin wallets while the current market value of Bitcoin has reached US$170.8 billion and there are 44.69 million Bitcoin wallets. More people participating in it means more uncertainty.

The COVID-19 pandemic has also brought instability. The impact of the epidemic on the economy continues, and it has a significant impact on the value and price fluctuations of digital or other types of assets. During March 7-13, 2020, the price of Bitcoin fell from $9,120 to $4,700. Although the price of Bitcoin later recovered to its original level and even exceeded $10,000, the price fluctuations caused by the epidemic changed investors’ perception of Bitcoin. Bitcoin is not a safe haven asset that can resist traditional market pressures. On the contrary, its volatility is more intense, and investors will be more cautious when making decisions.

However, Bitcoin halving is an “inevitably” event. In theory, it should not affect the price of Bitcoin. The designing purpose of this mechanism is also to motivate miners. Therefore, Bitcoin halving is well-known, and price increases may also be a self-fulfilling prophecy. At the same time, the Bitcoin halving as a “big event” will also receive more attention. Its occurrence has created a rare marketing opportunity for the digital currency, which means that Bitcoin will enter more people’s sight and become the object of investment in the future.