Bitcoin 4-year circle: What happened and what’s going to follow?
Bitcoin halving is a much-awaited event in the crypto world. Since the Bitcoin four-year cycle is believed to cause spikes in the digital gold’s long-term price, anticipation always runs high before the fated day. With Bitcoin’s price almost going past the $10,000 mark in the past weeks, people have more reason to be hopeful.
But what really happened when the block reward was cut back to 6.25 BTC on May 11, 2020? Now that the dust has settled, what did the halving event mean for the global crypto community? What’s going to happen now?
How often does bitcoin value change?
The value of bitcoin is volatile and can change depending on various factors that can affect it. This includes the recent news reported about the cryptocurrency and the number of coins traded. You can check the value of change of bitcoin on various platforms because they update every second.
How often is bitcoin halving and what is it?
Bitcoin halving is an event that occurs every four years where the block reward received by miners are cut in half. The Bitcoin protocol automatically reduces the reward for every 210,000th block added to the chain. Satoshi Nakamoto included this in the program to reduce Bitcoin’s inflation rate. Since Bitcoin’s release in 2009, there have already been 3 halvings. This creates scarcity in the supply of Bitcoin, causing its price to rise, resulting in a decreased inflation rate.
The first halving occurred in 2012 when the initial reward of 50 BTC was reduced to 25 BTC. When the 420,000th block was mined in 2016, the reward for the succeeding blocks was cut to 12.5 BTC. And only recently in the second week of May 2020, the 12.5 BTC reward was decreased to 6.25 BTC after the 630,000th block was mined.
The anticipation before the big day
Before the halving day, the network experienced an extreme increase in trading volumes that resulted in backlogs. Weeks later, the backlog remains though it has significantly decreased. This shows the heightened number of transactions made with Bitcoin. With anticipation running high in the last few months before halving, more people bought Bitcoin hoping that their investment will turn profitable in the long run. This led to an impressive increase in price during the last few weeks before the halving day itself.
Once the block reward is halved, miners would be the most impacted members of the crypto community. Nonetheless, Genesis Mining reports in their own conducted research that 50% of Bitcoin miners are expecting the price to increase after the halving.
Because of the precautionary deflation measures, it’s predicted that Bitcoin’s rate will drop from 3.6% to 1.8% per annum soon after the halving occurs. With the reduced flow of supply and constant high demand, it’s foreseen that Bitcoin’s price will increase in the long-term.
The previous halving events
When Bitcoin was created in 2009, the initial reward for every confirmed block was 50 BTC. That was eleven years ago. Since then, Bitcoin has seen three halving days, the last one only occurred recently. In November 2012, the first halving happened and the reward was cut to 25 BTC. In July 2016, the second halving occurred where the block reward became 12 BTC. Recently, last May 2020, the reward was further cut in half, making it 6.25 BTC.
During the first halving event in 2012, Bitcoin’s price soared to 9,336% after only a year. From $12, a single Bitcoin became worth $1,038.
The second halving event in 2016 saw a 288% increase after a year. From $650, the price appreciated to $2,526. Based on the previous data, people widely believe that halving days are ultimately a positive event due to considerable spikes in price.
Bitcoin’s price before halving
Since 2019, anticipation has been high for the third halving event, especially after the “crypto winter” of 2018. People were looking for the light at the end of the tunnel. By the end of 2018, Bitcoin’s price dropped to the $3,000 mark. It was BTC’s lowest fall since its 2017 bearish run where it peaked at an all-time high of over $20,000.
Fortunately, 2019 proved to be a better year with prices constantly rising in the first and second quarters. By the time July came around, the price breached $10,000, staying in the 10-12k range. BTC enjoyed high prices up to September. When October rolled in, the price fell below $10,000 and constantly shifted between $7,000 and $9,000. This continued until the end of the year and partially continued until the beginning of 2020.
The first quarter of 2020 started well, with Bitcoin’s pricing rising continuously. It swelled come February and breached the $10,000 mark which lasted for a while. However, March was a bitter time. On March 12, now known as “Black Thursday”, Bitcoin’s price started dropping for days until it went below $5,000 and dipped to $4,944.
That was BTC’s lowest price yet in 2020 and it has now risen by 80%. The crash in March is mostly attributed to the coronavirus (COVID-19) pandemic. The World Health Organization declared the COVID-19 virus a pandemic on March 11. The day after, financial markets crashed as investors pulled out and liquidated their assets. The crypto market wasn’t spared from the fall, but it’s been steadily growing from the below-5k dip.
Since April, Bitcoin’s lowest price was $6,446 which was the price on the first day of April. It hasn’t fallen as low as that since, proving that the price is constantly rising. At one point on May 9, it almost went above $10,000 when it reached $9,917.
Crypto news sites often correlated the consistent growth in price to the halving event in May. In past halving days, trading volumes in exchange sites surged during the build up to the fated day. Since more people are buying Bitcoins believing that the halving will cause its price to appreciate in the long-term, its price continuously increases according to the law of supply and demand. The more people buy Bitcoin and increase demand, the more its price will rise and the halving day always finds increasing demand for Bitcoin.
Bitcoin halving 2020: What happened
On May 11, 2020, at approximately 3:21 PM EST, the 630,000th block was added to the Bitcoin blockchain. In accordance with the protocol stating the reward will be cut every 210,000th block, the reward received by miners for every confirmed block was reduced from 12.5 BTC to 6.25 BTC.
Ever since then, miners have been receiving this reduced number of newly-minted Bitcoins in exchange for every processed block. At the time, Bitcoin was trading at $8,500. Today’s $9,000 is a jump from its pre-halving price, giving people more hope that it will continue on its upward trajectory.
The first block in the post-halving day blockchain was mined by the China-based mining company Antpool, which ranks fourth as the largest mining pool by total computing power.
Short-term results: How did halving affect the crypto community
The immediate result expected after halving is that the total number of newly-minted coins added in circulation will drop from 1,800 to 900 units. Mining operators will also see a drastic reduction in their daily total revenue since they will start receiving less incentive for every block they mine. This results in less computing power poured into the Bitcoin network.
One week after the halving day, Bitcoin users saw a new 11-month high increase in transaction fees. On May 14, the average fee paid by consumers for every Bitcoin climbed to $5.16. For almost a year, the transaction fee was only a few cents and it increased to over 168% in just four days.
Since January, Bitcoin’s average fees have been steadily increasing along with its price. The fee has increased 1,741% but most of the growth can be attributed to the “gold rush” two weeks before the halving event.
Usually, transaction fees increase due to heavy usage experienced by the Bitcoin network. As the halving day dawned nearer in late April, competition for having the transactions completed rose higher. With the increased number of transactions demanding to be included in the next block, the transaction fees increased.
According to Blockchain.com’s data, over 80MB worth of transactions are choking up the Bitcoin network, causing massive backlog and activity that still continues to this day. In India alone, trading volumes increased by 275% in the past month as reported by WazirX, the country’s leading crypto exchange site. Another platform called Unocoin saw a 200% increase in customer sign ups in April alone.
How did it affect miners
Miners are always the ones directly affected by the halving day event. While it’s usually a cause for celebration to traders, for miners, it means lower compensation for their hard work. Even before the event occurred, a number of unprofitable miners already shut down their equipment. After May 11, Lots of miners pulled the plug after the halving day, an expected outcome after every halving event.
For small-time miners, the reduced reward cannot compensate for the electrical charges that come with mining bitcoin. Mining requires specific hardware that consumes huge amounts of energy, causing miners’ electric bills to constantly skyrocket.
Big-time mining companies, however, had no real reason to fear for the reward reduction event. Since they have multiple employees vying for the sweet, newly-minted digital coin.
Income has reduced but transaction fees have increased from 60 cents to upwards of $5. While this can be bad news for traders, this is fortunate news for miners. Many miners are counting on the increase of fees so they can still remain profitable in their business.
Effect on Bitcoin's price
Bitcoin has been on a steady rise since the “Black Thursday” phenomenon brought by the coronavirus pandemic. The price continued climbing up and it even reached $10,000 a few days before the halving day. On May 11, Bitcoin’s price dipped a little to $8,000 but quickly bounced back to $9,000 in the following days.
A week has passed since the halving event and Bitcoin’s price has been stable. It experienced a brief hiccup on May 21 where it teased the border between $9,000 and $8,000. Coinbase reports this was because someone moved a long-dormant cache of coins. These were coins bought during Bitcoin’s earliest days meaning its price would’ve catapulted by now. Selling these affected the coin’s price, alerting a few newbie investors.
But it’s not something to be worried about, at least not according to Ruper Douglas, head of institutional sales at Koine, an asset management company. Contrary to what others feared, Douglas plans on “buying the dip”, which is a slang term in the crypto community for buying assets while the prices are low, believing that their prices are soon to climb higher.
Compared to its price early on in the month, Bitcoin’s price now falls a bit short but Darius Sit of QCP Capital, a crypto quantitative fund, says “it’s nowhere near statistically significant.” At its path now, it can be said that the oldest cryptocurrency in the world is well on its way to a bullish run.
What to expect now after the halving
If you’re expecting Bitcoin to skyrocket soon after the halving event, you might be in for a letdown. In the past halving events, it took more than a year for Bitcoin’s price to reach new heights. The same can be expected this third halving. Besides, crypto trading is more often than not about the long-term profit. It will take time before the world sees the real effects of the third halving day on the market.
Right now, the focus stays on how the digital gold will fare during the global coronavirus pandemic. After dropping with traditional financial markets in March, it immediately bounced back and increased from $4,000 to double its value. It’s been constantly rising mainly due to large demand. Additionally and impressively, Bitcoin has even outperformed every other asset in the market including real estate and gold.
Other countries already experiencing inflationary pressures have turned to cryptocurrencies as an answer. Venezuela’s adoption is higher than ever with over 20,000 stores ready to accept cryptocurrencies as payment this coming June. Now that markets and economies are tanking and the world is possibly entering into a recession, people are looking for a safe store of value. Crypto enthusiasts are putting their resolute trust in the blockchain.
Bitcoin halving 2024: Into the future
It’s still too early to predict what will happen with the next halving day event in 2024. Before we can get to that, we still need to see what this year’s halving will bring in the immediate years to come.
Words by: Leann Padilla