• Friday, December 01, 2023
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Why post-Bitcoin halving price estimates may be wild off


Keen followers of previous Bitcoin Halving events may have already figured out that the 2020 event would most likely not be following in the footsteps of its predecessors. Things have changed considerably from 2012 and 2016 when the cryptocurrency market witnessed a halving hence outcomes from Tuesday’s halving could swing anyway. 

Apart from COVID-19 impact on global markets and investors’ appetite in investable assets, the price of bitcoin on the eve of the halving already gives a clue that these are not normal times. The price of bitcoin is currently back at $8,849 only days after briefly surging past $10,000. 

The world’s largest cryptocurrency has seen a price rally of about 50 percent since January 1. Some smaller cryptocurrencies have also made surprise triple-digit percentage gains as a result of bitcoin’s influence. 

However, during a webinar in May, Jason Deane, a cryptocurrency evangelist for Luno and miner said the most notable outcome of the halving would likely be a drop in bitcoin inflation. The inflation rate of bitcoin is expected to fall from 3.65 percent to 1.8 percent, in stark contrast for the annual global inflation rate in 2019 of 3.41 percent and an estimated 3.56 percent so far this year according to Statista.  This also means that bitcoin’s annual increase in supply will be lower than that of gold which is at about 2.5 percent for the first time in its life. 

Deane says it is difficult to predict where the price will go at the end of the halving because there is not enough data to make concrete deductions. There have only been two Bitcoin Halving events in the entire eleven-year-old history of the cryptocurrency which, for Deane, are not enough data points to be able to create a likely outcome that has any real credibility.

He also makes the point that bitcoin’s awareness, use, and adoption levels are far higher than the levels it used to be in previous halvings. But the halving will trigger an immediate decrease in hashrate. 

Hashrate refers to the measure of the power of the computers linked to the Bitcoin network, which determines their ability to produce new coins. As bitcoins are mined, blocks of verified transactions have to be ‘hashed’ before they are added to the blockchain. Hashes are created by successfully completing an intentionally difficult mathematical puzzle.

Hashrate has been reaching record highs in recent times. Many analyst prefer high hashrate compared to a lower one, as they believe it effectively means the network is more secure from 51 percent attacks. 

While a drop in hashrate is almost a certainty having followed every bitcoin halving prior to this one, Deane does not think it would make the network insecure or exposed to 51 percent attack this time around. Bitcoin cash halving in April also saw a drop in hashrate and hasn’t been attacked since.

“The fact is that the finance needed, the sheer will to do it and the level of coordination required to fit this narrow window will render the task as next to impossible as it can be. No, the bitcoin network will emerge unscathed and entirely intact,” Deane said. 

Inasmuch as price is not likely to repeat the highs of 2017, it would not stay the same. Like every economic law, prices will be affected because supply is limited. The halving will reduce the number of bitcoin minted daily to 900 from 1800. In both previous halvings, the reduction has historically signalled the start of a bull market. However, on those two occasions investors were not facing a global economy buffeted by a deadly virus. 

The 2020 halving is taking place in one of the most uncertain and unstable financial landscapes ever witnessed in human history. 

“Analysts, myself included, have struggled to make sense of new data, trying to extrapolate likely outcomes and decipher newly formed macro-economic behaviour using variables that are changing in real time even as we examine them. The conclusion must be that the only certainty right now is uncertainty itself,” Deane said.