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What is bitcoin halving and how to prepare for a possible price hike

Cryptocurrency

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What is halving for?

When Satoshi Nakamoto, this unknown entity, created Bitcoin in late 2008, his goal was to take the currency's issuing power out of the hands of governments. It would be useless to create a new system if a small group has the power to change the quantity in circulation according to its own interest.

The solution? A decreasing emission in the
number of coins over time, in a staggered and predictable manner. THE
equivalent inflation in the early years was quite high, but over time it would be
reduced. This occurs for two reasons:

  • higher circulating base each year, since the stock
    increases over time;
  • emission rate for new BTCs cut in half by
    every four years.

This cut in production was called
halving, and directly impacts
miners, owners of specialized machines that work to find
new blocks in order to record transactions on the blockchain.

How
so blocks?

The block is nothing more than a set
of data that integrates this information chain which is the blockchain. There they stay
all movements were recorded, from the moment the coins were
created, that is, mined.

In order to reward the work of these
miners, each block found received an award of 50 BTCs, in addition to the
fees paid in each transaction. The miner receives for energy expenditure
and the equipment itself.

How
does this impact the price?

Scarcity. In the beginning, 2.6
million Bitcoins a year. After two processes of halving, today there are only 656 thousand a year. That is, every 4 years
fewer BTCs enter circulation.

Imagining that demand will remain
more or less constant over the months, the tendency is to cause a rise in
prices. The big question is whether the market prices this change before the date or
if it really takes a few months for this effect to be felt.

Halvings
2012 and 2016

Notice in the graph below, on a logarithmic scale, that the event itself is not a milestone at the beginning of the bullish movement, on the contrary. The pump starts a few months after halving, which is expected in May 12th in 2020.

It is important to remember that the halving Bitcoin Cash (BCH) happens
before, around April 8
. They are currencies with market dynamics
often different.

Suggestion

Instead of trying to find out the month that this movement will start, start making regular purchases. This way you benefit twice: buying cheaper if there is a drop, but at the same time gaining in the longer term cycle due to this effect of halving.


Want to test your knowledge of Bitcoin? Machete quiz with questions we’ve prepared for you. Take the opportunity to get to know Coinext, the most advanced exchange in Brazil.

About the author

He is currently CEO at Coinext. Economist graduated from Università di Roma (Italy) and investor in cryptocurrencies since 2014. He has more than 15 years of experience in leadership positions. He was CFO of Hexagon Mining and CFO of Vodafone Brasil. He also worked for multinationals such as Airbus Industries (France) and PricewaterhouseCoopers (Italy and Brazil).

Disclaimer - OBN is an informational website which aims to give the latest blockchain related news to the readers. Articles on OBN should not be considered as investment advice. Trading cryptocurrencies is a high-risk investment, every user is advised to consult an expert before making any decisions.