Those who invest in Bitcoin and follow the cryptocurrency markets are always interested in knowing when the next Bitcoin halving will take place. These events affect the speed at which new Bitcoins are created. This makes the information very important to Bitcoin miners who actively mine coins for profit. Here is a look at the next scheduled Bitcoin halving.
What is Bitcoin Halving?
Bitcoin halving is a scheduled event that is built in to the token’s programming. It happens on a regular schedule, with the next Bitcoin halving being anticipated for May 20, 2020. Other Bitcoin halvings occurred on November 28, 2012 and July 9, 2016.
When a Bitcoin halving occurs the cryptocurrency is created half as fast as before. Bitcoin is created when new blocks are added to the blockchain. Those who help to confirm and verify the blocks are rewarded with new Bitcoin.
A halving works to make Bitcoin scarcer and therefore more valuable. It is necessary to diminish the rate at which new Bitcoin can be created in order to maintain the overall function of the token and its blockchain. Let’s take a look at the Bitcoin halving process in more detail.
How Bitcoin Halving Works
Bitcoin halving is designed to counteract the inflation rate of Bitcoin. The process has a direct affect on the supply curve of Bitcoin. It reduces the number of new Bitcoin that are generated by mining. Without halving the supply of Bitcoin would continue to increase at a rapid rate and produce inflation. This would devalue the digital currency and make it difficult for Bitcoin to sustain its value.
Miners receive rewards in the form of Bitcoin for mining blocks on the blockchain. Mining is simply the process of solving difficult mathematical equations which serve the purpose of confirming transactions on the blockchain. Many people still mine Bitcoin, but the process has become progressively more difficult. Today it is mostly carried out by large mining collectives who operate mining farms.
Bitcoin is a digital asset that was designed to become scarce over a period of time. The purpose of increasing scarcity with Bitcoin was to help the currency retain a monetary value. It is vitally important to any cryptocurrency that the token preserve value. Otherwise it would be worthless as too many tokens flood the market, driving down the value of the cryptocurrency.
A part of the Bitcoin programming calls for halving at various periods of the token’s existence. It is these regularly scheduled halvings which make Bitcoin a viable asset class.
What Bitcoin Halving Means for Cryptocurrency Investors
Investors in Bitcoin and other cryptocurrencies are always watching a halving with interest. The reason for this is that halving can directly affect the value of Bitcoin moving forward. The reason that halving affects Bitcoin’s price is because it effectively lowers the inflation rate of the token.
At the present time Bitcoin has an inflation rate of about 4%. After the next having occurs in 2020, that number is expected to drop to around 2%. The principle that exists behind halving is that reducing the supply of the token will increase demand, therefore making the price of the token rise.
The market reaction to past halvings has been standard for asset classes. A halving is typically proceeded by market enthusiasm in anticipation of a price increase. This causes more trading as investors speculate that the price of Bitcoin will rise. After the halving there is typically a long, protracted increase in the value of the token.
Historical Bitcoin Halving Data
By looking at how the market has responded to Bitcoin halving in the past it may be possible for investors to speculate how the next halving will impact the market. Let’s begin by looking at the first Bitcoin halving in November of 2012.
In the run-up to the Bitcoin halving there was a spike in the price of Bitcoin. Before the halving the price of a single token was less than $4 at the start of 2012. Once the halving occurred Bitcoin finished out the year at a value of around $13. That is the last time that any investor could purchase Bitcoin for such a low price.
In July of 2016 a similar effect on the market occurred. The price went up in anticipation and then leveled off before the end of the year. Once again, Bitcoin crossed a critical threshold that it has not again approached. This was the last time that Bitcoin could be had for $600.
It bears noting that each Bitcoin halving follows a specific routine. Prices begin to rise in anticipation of the halving, with prices peaking after the halving has been conducted. Then, there is a fall back as sentiment comes back down.
Investors can expect a similar market pattern to occur when Bitcoin is halved again in 2020.
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