Bitcoin halving is one of the essential components that make Bitcoin unique compared to other crypto assets.
One of the most fundamental features of fiat money lies in its inherent inflationary value. Money is not scarce and can be printed nearly at will (by central banks), which causes inflation and devalues the worth of fiat money over time.
Bitcoin, on the other hand, was created in such a way as to keep its inflation in check. This is done through Bitcoin halving, where the reward given to miners is cut in half every four years.
Due to the halving, Bitcoin will become more valuable over time due to its scarcity. It's basic economics that its value will naturally increase when an asset's demand exceeds the supply.
Unlike conventional fiat currencies, individuals created cryptocurrencies, which do not have a central authority to control or regulate their supply. Instead of having an intermediary to verify financial transactions made by one user to another, cryptocurrencies operate on the blockchain by millions of computers worldwide.
The miners operate the computers to mine Bitcoin by recording and verifying a new transaction. The miners create a new block whenever there is a new batch of transactions that the computers must authenticate/solve before approving on the blockchain.
This system effectively replaces the need for a banking system. Anonymous miners verify the transaction on a public ledger, i.e., the Bitcoin blockchain.\
Since the Bitcoin miners lend their computational power to help solve the cryptographic algorithms on the blockchain, they receive bitcoins as a reward. Over time, this reward is cut in half through the halving Event.
The upper limit for the Bitcoin supply is 21 million. In other words, once the blockchain reaches that capitalization, no more BTC will be generated, which will stabilize Bitcoin's inflation.\
To prevent inflation as coins are distributed, Satoshi Nakamoto addressed this issue in an email sent to his network of cryptographers back in 2008:
Source: https://plot.ly/~BashCo/5.embed
As Bitcoin gets progressively distributed, the halving ensures that the cryptocurrency will not fall into the trap of high inflation like fiat currencies.\
The reward as of 2019 was 12.5 Bitcoins for every block solved by miners. The most recent event happened on May 11, 2020, and the reward automatically reduced to 6.25 Bitcoins.
Based on the graph above, the current annual inflation rate is 3.8%. After the halving, Bitcoin's inflation will drop to 1.8%.
Within an hour, an average of 6 blocks within an hour. Since halving happens once every 210,000 blocks, the halving Event occurs every four years, reducing mining reward by 50%.
For example, if each miner receives 12.5 Bitcoins for solving a block today, the miner will receive 6.25 Bitcoins after the halving has occurred.
Although 21 million Bitcoins have been generated, we also need to include all the Bitcoins that have been lost. It's safe to assume over one-third of all Bitcoins generated cannot be recovered.
The bitcoin halving event for the year 2020 happened on May 11. This would be Bitcoin's third halving Event, with the first halving Event occurring in 2012.
The May 2020 halving brought the mining reward down to 6.25 BTC.
Source: bitcoin.com
Usually, six blocks are found on average within an hour, and halving happens once every 210,000 blocks. This makes it every four years for there to be a halving event.
Therefore, the next Bitcoin halving event, which will be the 4th halving Event, is estimated to happen in 2024, bringing the mining reward down to 3.125 BTC.
Bitcoin halvings will occur every 210,000 blocks; miners might have finished mining all 21 million bitcoins in 2140.
We'll start his part by stating a commonly held belief in trading: "past performance is not a guarantee of future performance."
Though this is often the case, it's tempting to assume that Bitcoin's price action will replicate its post-halving periods' past performance.
The chart below shows how bitcoin performed in the first 2 Bitcoin halving events. And for each halving, Bitcoin experienced a massive bull run of between 200% to 1,700%.
The uptrend begins roughly a year before the halving date. The halving of 2012 saw the price of Bitcoin increase by 1,700% over the next four years.
Source: Medium
The table above indicates a similar pattern. However, when you look at the halving price of bitcoin after the third halving, which happened on May 11, 2020, there are some differences. The chart below shows a rise in price as the halving approached, but after the Event, prices appeared relatively stable, with no accurate indication of a bull market nearby.
Because the previous halving events happened when global economies were stable, bitcoin may have defeated the odds through the third halving Event. Although the price did not skyrocket like the previous times, the market seemed moved in anticipation of the Event.
Though at the same time, "past performance is not a guarantee of future performance." The cryptocurrency market is far more mature today than ever, and many other variables affect the halving price action for Bitcoin.
For the recent halving of May 2020, we may need more time to acquire market data to analyze if price action post-halving is positive.
