If you have been following Bitcoin, you will know that a major event took place three weeks ago for the Bitcoin network. That’s right, the third Bitcoin Halving event in the history of the Bitcoin network happened.
Bitcoin Halving: Wait, What’s That?
The halving event of Bitcoin (or Bitcoin Halving) is a milestone in the Bitcoin network when the generated rewards per completed block gets halved. At the same time, the amount of new Bitcoins being issued every minute also gets halved.
History Of Bitcoin Halving Since Its Beginning
Back in 2012, the first Bitcoin Halving event occurred. In the first Bitcoin Halving, new Bitcoins issued every minute dropped from 50 to 25. In 2016, the second Bitcoin Halving in the history of the Bitcoin network took place. New Bitcoins issued every 10 minutes dropped from 25 to 12.5. Three weeks ago, the third Bitcoin Halving happened with new Bitcoins issued every 10 minutes falling to 6.25 from 12.5
As you would have noticed, Bitcoin Halving is an event that takes place almost every four years. While there’s no hard and fast rule and it actually depends on how many blocks have been completed (i.e. 210,000), it is estimated that the next Bitcoin Halving will happen in 2024 at block 840,000.
Why Does Bitcoin Halving Occur?
Now, the question that you might be pondering about is why does Bitcoin Halving occur? Well, the purpose of Bitcoin Halving is to ensure that the total supply of Bitcoin does not exceed the amount of 21 million that Satoshi Nakamoto set when he first created the cryptocurrency. Without Bitcoin Halving, Bitcoin is unable to control its limited supply. Thus, Bitcoin Halving is a necessary event in the Bitcoin network to ensure that there are only 21 million Bitcoins that will ever be in existence.
What Does Bitcoin Halving Mean For Crypto Miners?
Since the reward of mining halves whenever Bitcoin Halving takes place, the profitability and margin of crypto miners will be affected. This is especially if the electricity and operational cost of mining is higher than the revenue from mining after Bitcoin Halving. Some of the least efficient miners might be forced to close down as they become unprofitable.
Because of this, there is also a hash rate impact on the Bitcoin network. For those of you who don’t know, hash rate is a measuring unit of the processing power of the Bitcoin network. Given that some less efficient miners are being forced to stop operation, there are less miners to hash and validate transactions. Thus, this negatively affects the hash rate. Since Bitcoin Halving, the hash rate of the Bitcoin network has dropped from 103 exahashes per second to 87 exahashes per second.
What Does Halving Mean For Crypto Traders?
Besides the Bitcoin Halving parties that are taking place, Bitcoin Halving also has a significant meaning for crypto traders.
While there isn’t any no short term impact on Bitcoin prices, Bitcoin Halving signals that the supply of Bitcoins is getting lower in the coming future. Basic economics knowledge tells us that as supply diminishes, the price of Bitcoin will increase if ceteris paribus. This can be observed in the previous two Bitcoin Halving events where the price of Bitcoin continued to climb after Bitcoin Halving.
Will Bitcoin Prices Continue To Ascend Post Bitcoin Halving?
Besides the pure demand and supply factors, there were also other factors that have contributed to the rise of Bitcoin prices.
In 2012, while the price of Bitcoin went up after Bitcoin Halving, the pace of rising Bitcoin prices was more muted compared to recent years. That’s because there were few cryptocurrency exchanges at that point in time. Plus, margin trading for Bitcoin has yet to exist. In the subsequent Bitcoin Halving in 2016, Bitcoin went on to rise to an all-time high of US$19,891 as media attention started to cast the spotlight on Bitcoin.
Now, with the third Bitcoin Halving in 2020, the price of Bitcoin could go either way. On one hand, there are much more traders who are trading Bitcoin in the cryptocurrency market than in the past. At the same time, with as many as 30% of miners shutting down according to Bitcoin.com, some traders believe that Bitcoin prices will continue its historical trend of rising post Bitcoin Halving.
On the other hand, some traders view the US$12,000 level as a strong resistance. As such, Bitcoin prices might continue to trade sideways between current level and US$12,000 as the market awaits a breakthrough to happen.
What Happens To Bitcoin One Week Into Bitcoin Halving?
From a technical analysis point of view, we can see that the price of Bitcoin tried to test the US$8,500 support. But following the Bitcoin Halving event, price has rebounded. Bitcoin is picking up strength to retest the US$10,000 resistance that it failed to break through a few days after the Bitcoin Halving on 11th May 2020.
What Should Crypto Traders Do Next With Bitcoin?
We think that there are multiple opportunities for traders to tap into for their next Bitcoin move. This is especially with the evolution of the cryptocurrency derivatives market in recent years.
For example, traders can either take leveraged long or short positions using perpetual swap contracts to profit from the fluctuation in Bitcoin prices. You can do this without having to take delivery of the underlying Bitcoin asset.
For those who are holding onto Bitcoin, you can use derivatives such as options to hedge against a potential fall in Bitcoin prices through the derivatives market. Not just that, the robust derivatives market also gives you the opportunity to get price signals and consensus estimates of market expectations on Bitcoin prices. This could help you forecast the next Bitcoin trend in the short term.
If you are a crypto trader, be sure to explore the cryptocurrency derivatives market to check out how they can use cryptocurrency derivatives to profit from Bitcoin price movement in the coming months.
Don’t have access to the cryptocurrency derivatives market? Sign up for a free account with Overbit to start trading derivatives with leverage anywhere, anytime.
About the Author:
Chieh Liu, Founder & CEO Overbit developed a strong interest in blockchain and cryptocurrency while he was studying computer science at California State Polytechnic University in 2011. In 2018, Chieh founded Overbit, the world’s first cross-market trading platform.
Margin trading carries a high level of risk to your capital and you should only trade with money you can afford to lose. Margin trading may not be suitable for all traders, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.
The content on Overbit's website, blog, social media or any other platform is not intended to target any specific country or territory and its residents. Please check the applicable regulations of your country or territory before accessing Overbit’s platform