With the unanticipated spike in the prices of Bitcoin in the beginning of the first quarter of 2019, the altcoins followed suite and experienced a marginal price increase over the said time period.
This came after a year long winter that saw Bitcoin prices plummeting to a new low, settling around USD 3500. This volatility in prices spurred a debate among cryptocurrency enthusiasts and trade analysts, and gave rise to different theories as to the cause.
This happening almost a year prior to the next Bitcoin halving event has further raised much speculation on possible implications regarding Bitcoin’s price, as well as the prices of the rest of the cryptocurrency market. However, prior to drawing any conclusions, it is imperative to fully understand the concept and impacts of halving.
What is Bitcoin Halving?
Bitcoin halving is an event that marks the halving of the Bitcoin reward for mining new blocks.
This means that the miners start receiving 50% less rewards (denominated in Bitcoins) for the transactions that they validate. This phenomenon occurs whenever 210,000 blocks get verified and validated, adding to the existing chain of blocks in the Bitcoin blockchain.
With a block verification requiring an average of around 10 minutes, a total of 144 blocks can ideally be verified with a day, which amounts to four years to reach the milestone of 210,000 blocks.
This implies that the event occurs approximately every four years.
Bitcoin halving, together with the general increase in the complexity of bitcoin’s cryptographic algorithms, ensure that the total finite supply of 21 million Bitcoins are not minted and circulated within a short time frame.
Why is Bitcoin Halving important?
Halving prompts a drop in the number of new Bitcoins generated by the network, translating to a fall in the growth rate of the Bitcoin supply.
The cryptocurrency market, much given to speculation, has historically showed an inclination for greater volatility prior to this much awaited phenomenon.
Many proponents of the event believe that Bitcoin’s halving results in a long-term and positive impact on its prices.
The Bitcoin Halving 2020. This Will Get BTC To 100k! Are You Ready?
One of the more common theories as to why this happens is the fundamental mechanism of the economic forces of demand and supply. With miners’ rewards falling over time, the greater scarcity of Bitcoin supply automatically increases Bitcoin’s value.
Furthermore, miners are not traditionally inclined to sell their Bitcoins unless the sale covers the cost of the mining.
Admittedly, such occurrences create a pool of arbitrage opportunities for traders, although it must be clearly noted that the final result can differ across events, depending on the circumstances at the time of each halving event.