The world of cryptocurrency is counting down to an event, as rare as leap years that could boost Bitcoin price and possibly create new millionaires.
First Things First
The Bitcoin halving is due to a rule written into the crypto’s underlying code by its pseudonymous creator Satoshi Nakamoto so that its rate of supply slows after every four years till the 21 millionth, and final Bitcoin unit is created.
The halving works by reducing the reward of mining Bitcoin after every 210,000 blocks.
Bitcoin miners help secure and facilitate transactions by solving computational puzzles that verify previous Bitcoin transactions and chain those blocks of transactions together.
This process is to ensure there is no double-spending.
Successful miners with blocks are rewarded with units of Bitcoin (and some transaction fees). This process creates new Bitcoins.
In May 2020 (when the number of blocks hits 630,000), the next round of halving will see the Block reward fall from 12.5 to 6.25 bitcoins. This would make it less incentivizing to keep increasing Bitcoin supply (making transaction fees more reliable income source) and signals the market getting closer to the 21 million maximum minable Bitcoin.
Economics 101-what halving does?
Unlike Fiat currency like the Naira that the Central Bank of Nigeria (CBN) can print to increase supply, Bitcoin has a fixed total supply which makes it deflationary instead of inflationary.
In the case of the Naira, it can be ill-advisedly printed infinitely but the problem is people would have to give up more and more units of the Naira for the same goods or services bought.
It is not so in the case of Bitcoin because the closer the supply gets to 21 million, the more difficult it would be to get a hold of a unit and this would force the value up. In this case, less Bitcoin would buy more goods and services.
Halving limits the supply of Bitcoin relative to demand and this is why crypto-enthusiasts believe there would be an upsurge in the asset’s value in the coming months.
What history shows
Blockgeeks.com in a recent article noted that the surge in Bitcoin price after a halving has been slowing down since the first halving in 2012.
After the 2012 Halving, Bitcoin rose 9,336.36 percent to $1,038 in a year.
In post-2016-halving, Bitcoin rose from 288.60 percent from around $650 to $2,526 a year after.
While there is an expectation for price gain after this year’s halving, the effect might be milder because, in anticipation of higher gains, speculators could go bullish on Bitcoin.
Golden Cross-why gains may come early
A rare occurrence last week signalled the cryptocurrency could rise to over $20,000 in as little as two months.
The signal “Golden Cross” is one of the strongest bull indicators in technical analysis and it occurs when 50-day moving average rises above its 200-day moving average.
“Last time this happened #Bitcoin pumped 170% in under 60 days,” said Cointelegraph Markets analyst, Keith Wareing on Twitter.
While Bitcoin recently retreated from a break-out of its $10,000 resistance, 2019 shows this could be followed by a swift surge in price.
In April last year, Bitcoin fell to $4,995 after signalling a golden cross but rose 175 thereafter to $13,880, Bitstamp data shows.
While there was no halving in 2019 when the rare Golden Cross last occurred, it is not unlikely the expected surge before halving would be due to early positioning ahead of expected gains (i.e. Pricing in).
Whichever way, it might be a good time to hold on to your coins and prepare for the takeoff!
