The Bitcoin halving in 2020, we are getting closer and closer towards it. Much has been said and written about it. There is a lot of speculation in the background about the effect the halving will have. Not only on the Bitcoin price but also on the reputation of the most famous cryptocurrency in the year 2020.
Today we take you into our vision of the Bitcoin halving in 2020 and the unprecedented potential that the halving has in our experience. Not only do we discuss the Bitcoin halving in 2020, but we also look back on the first Bitcoin halving. In addition, we also zoom in on how money works and how that relates to cryptocurrencies.
How does (fiat) money work?
Before we talk about our beloved (or love-hate) Bitcoin, we first have to look at how fiat money works. There used to be a direct relationship between gold and money. Whether it was coins or paper money, there was always a correlation between money and gold. Also, between money and goods.
This is no longer the case today. The gold standard was abolished in 1971. Until 1971 the gold standard ensured that the price of money was always linked (pegged) to gold.
The gold standard was abolished in 1971 by US president Nixon. From that moment the US dollar was no longer dependent on the gold price, but the gold price was dependent on the US dollar. Maybe you are thinking right now: “so what …?”, but this has a considerable impact on how we look at money today.
The biggest difference with “before” is, of course, that money does not have a certain circulation, because the gold stock also has a certain circulation. Money can now simply be printed or “made up” without having to do anything against it. For example, to give the economy a certain boost. Or to provide a storm of credit.
This gives banks (and the money they bring in) an enormous power. With fiat money, trust is central. There is confidence in the euro right now. There is confidence in the dollar right now too and in the value of this currency. But gradually the confidence in fiat money seems to fade away more and more by anti-fiat groups. The continuous printing of money ensures strong inflation and an increased risk of a financial crisis, as we have already experienced before.
If you look at the Bitcoin exchange rate, most will immediately agree that it shows a more volatile movement than, for example, the dollar. However, the dollar also shows price movements (against the euro) of around 25% up and down. If you are talking purely about investments, a return (or loss) of 25% is still a big amount of ROI.
On the other hand, we do not have to be silly about the exchange rate fluctuations of the EUR / USD (the ratio of the US dollar to the euro), because in the last 5 years Bitcoin shows the volatility of around 6400%. So… that naturally says something about the fortitude of our beloved Bitcoin.
Yet – just like with fiat money – the value of Bitcoin is ultimately also based purely on emotion and trust. There is no gold, land or assets in front of a Bitcoin, so its value is anything but guaranteed.
21 million bitcoins
What is guaranteed is the total maximum circulation of Bitcoin. This is in contrast to fiat money, where billions of euros/USD are printed (or made up) every year. In the case of Bitcoin, this is not possible, as this is simply included in the design of the cryptocurrency. This means that there will be never more than 21 million Bitcoin in circulation. Add to that the fact that there is now more than 18 million Bitcoin and you understand that the Bitcoin in terms of quantity (not in terms of price, but in terms of numbers) is starting to reach its max. And how do you solve that problem? Exactly, with a halving. No worries: we still have until about the year 2140 before all Bitcoins are finally in circulation.
What is a Bitcoin halving?
The Bitcoin halving means that the reward for the miners is halved. The mining of Bitcoin yields the miners of Bitcoin coins. At the moment, a miner receives a fee of 12.5 Bitcoin for each “block”. Originally this was 50. After the first halving, this became 25 and after the second halving, the reward was (only) 12.5 Bitcoin. You don’t have to be a mathematical wonder to realize what the outcome of the upcoming Bitcoin halving will be. Exactly: a miner will receive 6.25 Bitcoin for the delivery of a block.
Briefly, the reward for miners is halved every few years. Before you immediately go around with a box of tissues: that is not necessary. A Bitcoin miner is not in a pathetic situation because it only receives half of a half of a half. Why not are you asking? Because back in the days when a miner received 50 Bitcoin for a block, the price of 1 Bitcoin was around 100 dollars. Converted: $5,000 for a block. Today a miner still receives (only) 12.5 Bitcoin, but the price is just under 10,000 dollars. In other words, little reason to think Bitcoin miners have no reason to mine Bitcoin anymore.
However, the competition is becoming increasingly high and it is becoming increasingly difficult to actually mine Bitcoin. To put everything in perspective, halving does not necessarily mean bad news for miners. And not for the Bitcoin price either as shown in the Bitcoin charts.
The first Bitcoin halving
It has been a while ago, the year 2012. A big monster hit from Psy (Gangnam Style), “Hurricane Sandy” raged across America and caused a huge amount of damage. No, the first Bitcoin halving was certainly not the biggest news of 2012. In fact, in 2012 almost no dog had heard of Bitcoin. And people don’t either.
Yet, the first Bitcoin halving was on the eve of a major change of course. After the first halving of 2012, the then (!) All-time high bull run took place in 2013. In the light of the last epic bull run (of 2017), it is barely more than a wrinkle on the graph, but at the time it meant a huge rise in prices for the people who owned Bitcoin at that time. Yet, compared to the second Bitcoin halving, the first was nothing more than a pea, unlike the crazy fireworks show that introduced the second halving.
The second Bitcoin halving
July 2016. Olympic games, the European Championships, Tesla and Brexit (yes yes, the fuss already started back then). For many, 2016 is a year that we can still remember. The second Bitcoin halving also took place in July 2016. The price for a Bitcoin was at a sloppy $ 650 dollar and the same Bitcoin was suddenly worth 50% more six months later.
That seems to have been the starting signal for the entire Bitcoin madness of 2017. In December 2017, Bitcoin peaked at its then (and now still) all-time high of $ 19,665.39. What goes up, must come down. The law of gravity also applies (unfortunately) to the Bitcoin course. However, the bubble does not seem completely cracked, since today we are still stuck with a fairly generous Bitcoin price of around $ 10,000 per Bitcoin.
The Bitcoin halving in 2020
It is impossible to predict what the impact will be for the next half year. Yet there are ‘experts’ who have made comments about the possible impact. Without giving guarantees (because nobody can do that of course), the general view is that the world can prepare for a new unparalleled bull run.
Most predictions are saying that we are going to pay a prize of $ 100,000 per Bitcoin, somewhere in 2021. That sounds crazy of course – it could be – but in fact, a $ 100k prize would be about 5 times the price of the last record high ever. In that perspective, that prediction is not bad at all.
The fact remains that mining has become a fairly expensive process. The computing capacity, electricity costs, and hardware together cost a lot of money. Many of these rewards (in Bitcoin) are sold immediately to ensure cash flow and keep the mining process running. That story will soon change after halving. The reward is then suddenly 50% lower, so many miners will not immediately pump their Bitcoin into the market. They will rather just wait until they receive a decent price for the services provided.
This decrease in supply – in combination with the increasing awareness and popularity of Bitcoin – has the unprecedented potential to realize an insane shift in supply and demand.
The unprecedented potential of the Bitcoin halving in 2020. The question will always remain whether the halving in the past is an indicator for a new bull is run in 2020. The fact remains that there is something to be said for a strong price increase when supply falls and demand for a product is increasing. For that reason, the halving phenomenon is suitable to be a bull run catalyst.