Speculation: Bitcoin block halving in 2020

Afbeelding bitcoin redactie 2-3-2020

Last month, the price of the Bitcoin came close to €10.000, thereafter the price has dropped again to approximately €8.000. Probably, these fluctuations have something to do with the speculation about the upcoming halving of the Bitcoin in May. On May 20, the third Bitcoin block halving will take place. This means that there will be 50% less new Bitcoins created every 10 minutes. The reward for Bitcoin miners halves every 210.000 blocks. This is determined by Satoshi in the protocol of the Bitcoin. Currently, 1800 Bitcoins are generated daily, but there will be created only 900 BTC every day from May 20. This means that the supply of new Bitcoins decreases: scarcity. The expectations about the consequences of the upcoming halving vary. The rewards of the miners will probably be halved.

Some analysts claim that the cost price of a Bitcoin will become at least $12.000 after the halving. Van der Chijs, one of the founders of Hut8, a mining company, claims that many miners make a loss already. He thinks that the cost price is somewhere between $12.000 and $15.000 now. Why would the miners continue mining? The miners probably hope that the price will reach a new record level soon. If it is true what Van der Chijs says, the cost price would become at least $24.000 from May 20. Many other analysts have a different forecast. For example, researchers of CoinShares determined that the current cost price of 1 BTC is approximately $6100 as a worldwide average. They took into account the electricity price and depreciation of the hardware. The company TradeBlock predicts that the price will more than double, because it will be more difficult to generate one BTC. Most analysts agree that a lot of miners will go bankrupt if the market price does not increase.

Up to now, there happened only two Bitcoin block halvings: in 2012 and 2016. Frank Smits of BTCDirect represented the price fluctuations before and after the previous halvings in the following table:

If you see this table, the optimism among investors is understandable. Perhaps, the possible price increase has to do with a self-fulfilling prophecy. But the situation around the upcoming halving is quite different, because the CME launched future products in 2017. From that launch the price decreased, because people could speculate on a falling price of the Bitcoin.

Perhaps, the price fluctuations of the Bitcoin will have an effect on the price of other cryptocurrencies, because the price of altcoins showed some similarities with the price of the Bitcoin in the past.

By: Kelly Veldman