Bitcoin (BTC), the largest cryptocurrency in the market is going to be experiencing a new halving event as soon as in May 2020. This is expected to be very bullish for the virtual currency due to different reasons. One of them is the fact that rewards for miners will be reduced by 50% from 12.5 BTC to 6.25 BTC per block.
Enthusiasts and analysts are trying to understand how this could affect Bitcoin’s future price and whether this is going to have a positive effect on the demand for Bitcoin. Indeed, supply can grow at a slower pace, but demand may not necessarily grow. However, if demand grows, the effect in the price could be noticeable.
In this article, we will explain to you what the Bitcoin halving 2020 is, how this could affect Bitcoin’s price and what we should expect this 2020 for Bitcoin and other virtual currencies.
What is a Bitcoin Halving?
Bitcoin was created as a scarce digital asset that gained popularity in recent years. The main goal was to allow individuals to perform payments without having to rely on a third-party authority. Although this is very useful, Bitcoin has also been growing as a store of value. Many analysts consider that the asset shares many things with gold, the store of value the world has already chosen.
Taking into consideration the fact that Bitcoin is a scarce asset, every four years, the creation of new Bitcoins slows down. Miners, those that confirm and process transactions, receive rewards for the work they do. Those miners need to buy expensive equipment, keep employees and pay for electricity bills. This could be a great cryptocurrency investment strategy for investors and crypto enthusiasts.
This is why, every single time that they process a block, they will receive a reward in Bitcoin. Nowadays, this Bitcoin reward is 12.5 BTC per block. But when bitcoin was created it was 50 BTC per block. In 2012, the first halving, pushed the price of the virtual currency to above $1,000 in just a year from close to $10.
The second halving in 2016 allowed Bitcoin to move from under $1,000 to $20,000 in the next bull run. Now, we are thinking about Bitcoin being traded below $10,000 – Bitcoin could surpass this level before the halving.
Halvings allow the virtual currency to continue growing, preserve its value and while demand expands, its value would eventually reflect the limited supply of Bitcoin.
Bitcoin Halving And Its Effects
The next Bitcoin halving is expected to take place on May 12, 2020. Bitcoin could again start a new bull run that would allow it to move higher. As mentioned before, a new halving will be very useful for the virtual currency if it wants to reach new highs.
Enthusiasts have been waiting for Bitcoin to reach a new all-time high since December 2017. More than two years passed and the market seems to be waiting for new records after a bear market in 2018 and a weak second half of 2019.
The total Bitcoin currently in circulation is 18,169,388 at the time of writing this article, while the maximum supply is 21,000,000. Until now, the total Bitcoins mined were 86.52% with 2,830,6130 BTC left to mine.
While now there are 1,800 Bitcoins generated per day, this is expected to drop to 900 per day the next halving period. At the same time, the inflation rate per annum after the halving will reach 1.8% down from 3.68%.
At the moment, it is not possible to predict what will happen to Bitcoin’s price. Although in the last halving events Bitcoin experienced a new bull run, we can only suppose what will happen after May this year. If history repeats again, Bitcoin could eventually hit new all-time highs. Many consider the virtual currency could reach a high between $50,000 and $300,000.
Nonetheless, this may not be the case. History does not always repeat itself over time and past performance doesn’t necessarily reflect future price performance. At the moment, Bitcoin has been in a bull run that allowed the price of the virtual currency to move from around $6,800 to $9,100 in just a few days.
The main question is whether this price increase will continue in the future and whether it will just be the beginning of a new massive bull run for Bitcoin. Once Bitcoin reached $20,000, the virtual currency fell to the lowest point in several years: $3,200 at the end of 2018.
Regarding Bitcoin’s hash rate, it has been growing in the last few weeks and years. Indeed, the hash rate reached an all-time high of over 120 million TH/s. Hash rate is the estimated number of tera hashes per second that the Bitcoin network is performing.
In general, when the reward of Bitcoin falls the hash rate tends to fall as well. Many miners cannot remain competitive in the market with a price of Bitcoin that remains stable and with costs that continue to grow (higher hash rate). This is why it will be very important to understand how the Bitcoin hash rate evolves after the halving.
If price grows, new miners will enter the market and the hash rate will continue to grow. If the price of Bitcoin remains stable, then we could see a miner capitulation if the price does not spike after the halving.
Bitcoin is now being traded around $8,650 and it has a market capitalization of over $157 billion.
Litecoin Halving Example
Litecoin (LTC), one of the largest cryptocurrency in the market, has also experienced a halving in August 2019. The whole market was waiting for it and there was a very powerful narrative around it.
Indeed, during the first half of 2019, the price of Litecoin moved from around $25 to over $140 in June 2019. This pushed LTC supporters to think that Litecoin was entering a new bull market after the halving. Nonetheless, this didn’t happen.
Litecoin fell like the whole market after June and it fell below $40 for a short period of time in the last weeks. At the same time, Litecoin’s hash rate has massively fallen, showing that miners were not able to remain competitive in the market.
Although there are now 12.5 LTC per block being rewarded to miners, the effects over the supply of Litecoin could be noticed in the next bull run. This is something that can be applied to Bitcoin with the next halving event in May 2020. If the market doesn’t follow a positive trend, Bitcoin miners could have problems and investors become bearish about the event.
At the time of writing this article, Litecoin has a price of around $57 and it has a market capitalization of $3.63. This is the 7th largest digital asset in the market after Bitcoin, Ethereum (ETH), XRP, Bitcoin Cash (BCH), Tether (USDT) and Bitcoin SV (BSV).
Bitcoin halving is a very important event that is expected to change the way in which the market is currently behaving. This is going to be the third Bitcoin halving that would take place on its network and many users consider it can be very bullish for the virtual currency.
As we have seen with the case of Litecoin, there is also a chance Bitcoin will remain in a bear trend rather than start a bull market. This could have a negative effect on its price and on its hash rate.
Now, enthusiasts are waiting for the upcoming halving to take place in May 2020. If history repeats itself, Bitcoin could eventually surpass its previous all-time high of $20,000 registered in 2017.
As many times mentioned before, this doesn’t mean Bitcoin will surpass its previous all-time high. Indeed, it is highly possible it may not do happen. There are many possibilities and investors are already planning their investments according to it.
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