Roughly every four years, a Bitcoin halving takes place, with the next one expected on May 14th, 2020. What does it mean for crypto investors? What have we learned from 2012 and 2016 halving events? Check out our blog below, and find out.

Halving (or halvening) – what does it actually mean?

For those not aware of what ‘bitcoin halving’ means (p.s. there will also be ethereum classic halvening and ZCash halvening in 2020), here is an explanation:

The amount of bitcoin that a miner receives as a block reward for solving a complicated calculation that adds bitcoin to the blockchain gets cut in half. That means that bitcoin becomes more valuable as a resource, and more scarce as a commodity.

“it is an event that halves the rate at which new bitcoins are created or in other words, an event that cuts the bitcoin mining rewards in half. It happens in intervals of 210,000 blocks or roughly every 4 years.”

To keep inflation under control, the bitcoin protocol was programmed with a hard limit of 21 million, with new bitcoins entering the system as an incentive for network processors (‘miners’) in a gradual and controlled rhythm. The rate at which they are created is reduced by half every 210,000 blocks, or roughly 4 years, mimicking the increased difficulty of gold mining.

The history of Bitcoin halving

The first Bitcoin halving happened on November 28, 2012, when the initial reward of 50 new bitcoins per block was halved to 25. Since July 9, 2016, miners have been receiving 12.5 bitcoins for each block successfully processed.

The next one is expected on May 13th, 2020, after which the network incentives will be 6.25 bitcoins per block. This is the reason why the debates around it are intensifying as we slowly approach it.

Will the Bitcoin halving effect have an effect on its price?

The previous two halving events have triggered the rising prices of Bitcoin (crypto bull run), the value of 1 BTC increased by 8,000 percent within a year in 2012, and rose by 2,800 percent in about one year and a half after the 2016 halvening. Everyone is expecting the same after the next one. Will it happen, no one knows, but what is for sure is that exciting times are ahead of us.

The famous American author Mark Twain once said:“History doesn't repeat itself, but it often rhymes,”

which refers to how investment managers build their expectations about the future.  If this is really the case, this presents an incredible opportunity for investors, especially after a significant drop in prices since the summer of this year.

On the other hand, some people argue that the halving is already priced in, and was the reason for the rally from $3,000 to over $13,000. Secondly, the bitcoin ecosystem today is very different from previous halvings. Four years ago, crypto derivative markets were in their infancy and institutional involvement was very limited. Therefore, it’s not unreasonable for investors to believe that the halving won’t have the same effect as it did in the past.

Bitcoin halving historical chart

Conclusion – is there one?

Last, but not least, halving is without a doubt an important event for Bitcoin and crypto as a whole. How will it affect the industry and prices of cryptocurrencies, no one knows.

What we would recommend you is to not blindly follow the advice or buy recommendations of others, and rather closely follow the debate, prices, and activities around it.  And in case you decide to jump on a wagon and buy some Bitcoin, don’t forget, ICONOMI is always here for you.