Bitcoin Halving ETA
Around 12 May 2020, the number of bitcoins entering circulation every ten minutes (known as block rewards) will be reduced from 12.5 to 6.25.
The event draws a lot of attention due to speculation about its impact on price. As the amount of new bitcoin supply is reduced and demand stays the same, the price per bitcoin could potentially rise. The big question, however, is whether this predictable event is already priced in by traders?
What is the halving?
When Satoshi Nakamoto created bitcoin he (or they) believed it was best for new bitcoin to be added in regular intervals, which made supply predictable and trustworthy.
“Coins have to get initially distributed somehow, and a constant rate seems like the best formula.”Satoshi Nakamoto
Every ten minutes new bitcoins enter the ecosystem as block rewards, which are earned by miners who run expensive equipment to mine them.
Every halving, the reward for mining new blocks get cut in half. This doesn’t sound very exciting, but in Bitcoin’s eleven-year existence, this has only happened twice before in 2012 and 2016.
Halving effects on price
Bull markets ensued after the last two halvings and the theory behind the increase in price is that there was less bitcoin available for miners to sell.
But the periodic reductions to block rewards potentially have a much bigger impact than short term price fluctuations. Block rewards are an essential mechanism to the security of the system. And with rewards diminishing over time, it remains to be seen whether the system’s security will be compromised.
Effects of the diminishing block rewards
One concern of the halvings are the effect of diminishing block rewards for miners. When rewards approach zero, miners will have to ensure profitability by increasing the optional transaction fees.
This could deter activity on the network and given current volumes, might not even be enough to incentivize miners to keep their machines running. Unless the user base and with that transaction volumes increase of course.