Bitcoin’s Block Reward Halving is One Year Away: Here’s What It Means
Bitcoin’s block reward is scheduled to drop from 12.5 BTC to 6.25 BTC on May 22, 2020 at 7:48:03 UTC. That’s less than a year away – so we decided to explore how bitcoin’s block reward halving will affect you.
Bitcoin’s block reward gets cut in half every 210,000 blocks – or roughly every four years.
Originally set at 50 BTC per block, the reward was halved to 25 BTC in November 2012 before dropping to the 12.5 BTC reward we have today. On May 22, 2020, bitcoin’s block reward will get cut in half once again. Bitcoin’s block reward will drop from 12.5 BTC to 6.25 BTC.
The block reward may not halve exactly on May 22. This is the estimated date based on bitcoin’s average block time of 10 minutes. This block time tends to be an overestimate because bitcoin’s hashrate is increasing long-term, but the difficulty that controls the block time is only updated every 2,016 blocks or roughly every two weeks.
Based on today’s estimate, however, it’s expected bitcoin’s block reward will get sliced in half on May 22. So what does that mean for the value of bitcoin? What does that mean for the future of BTC? Will this have any impact on bitcoin whatsoever? Or is this just another over-hyped, pointless milestone?
Depending on who you ask, May 22 could lead to any of the above situations. Let’s take a closer look at what bitcoin’s next halving date might mean for the future of the world’s biggest cryptocurrency.
The Vast Majority of Bitcoins Have Already Been Mined
First, it’s important to note that the vast majority of bitcoins are already in circulation. Bitcoin’s halving schedule means that the “emission” rate of bitcoin goes down steadily over time. Most bitcoins were mined in the early days of the currency when the block reward was set at 50 BTC. By the time bitcoin is in the year 2100 and beyond, the block reward will have dropped to just a fraction of a bitcoin.
To understand the impact of a bitcoin halving, it helps to look at some important bitcoin numbers.
- As of May 28, 2019, over 17.7 million have been mined, or about 85% of the total supply of bitcoin. Only 21 million bitcoins can ever be mined.
- That means there are only around 3.2 million bitcoin left to be mined.
- At today’s block reward rate, a total of 1,800 new bitcoins are generated per day.
- That gives us an inflation rate of around 3.78% per annum. The supply of bitcoin increases 3.78% per year, with that supply coming exclusively from bitcoin mining.
- On May 22, 2020, bitcoin’s inflation rate will get cut in half overnight. Instead of being 3.78% per year, the bitcoin inflation rate will be 1.80% (based on the supply at that future point in time).
- Today, approximately $15.8 million new bitcoins are mined each day (based on a price of $8,770 per BTC)
One of the best sources for bitcoin halving numbers is from BitcoinBlockHalf.com, which highlights the current bitcoin in circulation, the percentage of bitcoin mined, the inflation rate per bitcoin, and other data relevant to the next bitcoin halving.
Will Bitcoin’s Price Jump After Halving?
After the two previous bitcoin halvings, bitcoin’s price went on a bull run. It makes sense: overnight, the supply of bitcoin gets cut in half, while the demand remains about the same. Prices will inevitably increase.
Many experts believe something similar will happen in May 2020 during the next bitcoin halving.
Of course, there’s a corollary to this effect: during the previous two bitcoin halvings, people weren’t really sure if the price would increase. There wasn’t enough precedent. Now, with the third Bitcoin halving about to take place, prices will almost certainly increase before the halving as traders seek to capitalize on the expected “halving boost”.
All of this adds up to one simple conclusion: bitcoin prices will most likely be very volatile around the time of the bitcoin halving. The price may skyrocket in the weeks leading up to the halving before dropping sharply immediately after the halving as traders seek to sell at the peak.
Eventually, markets are likely to settle in a smaller price band within approximately one week of the halving. However, based on previous halvings, it’s also possible we could see the start of a gradual bull market after the next halving, with the price gradually rising over a 12 to 18 month period.
As with any bitcoin price predictions, we really have no idea where bitcoin’s price will go after the May 2020 halving.
Some Experts Believe the Halving is One of Several Reasons Why Bitcoin Will Continue Rising
Bitcoin’s block reward halving may cause prices to rise. However, it’s possible that bitcoin’s halving is just one of several factors fueling the next bitcoin bull market.
A growing number of bitcoin bulls see the halving as one of several reasons why bitcoin’s price is expected to go up. Hedge fund manager Jihan Chu, for example, believes the halving is one of three reasons why bitcoin is expected to increase in value to $30,000 before 2020. The other two reasons are the disappointment of tech IPOs and increasing institutional support for crypto (especially among Facebook and Fidelity).
In other words, the halving won’t singlehandedly cause the price of bitcoin to skyrocket, but it is one of several reasons why bitcoin may go up in the near future.
Bitcoin’s Price Could Do Nothing
There are also some people who believe bitcoin’s halving will do nothing to the price. By the time the actual halving date hits on May 22, 2020, the markets will have already priced the halving in long before.
It’s no secret that halving is expected to lead to a price increase. It’s simple math: if supply gets cut in half and demand remains stable, then prices will inevitably increase.
However, when 80% of the community believes prices are going to go up, it’s inevitable that the market will move to accommodate this action long before the actual date of the halving.
With that in mind, the date of the halving could pass with limited fanfare. The price of bitcoin could do nothing on May 22, 2020, neither moving up or down with very much strength.
Bitcoin’s Price Could Plummet
There’s another possibility on or around May 2020: bitcoin’s price could plummet. So many people are expecting bitcoin’s price to rise around this time that the opposite could certainly occur. We could watch bitcoin’s price drop sharply.
Let’s say the price of bitcoin gradually rises during the first few months of 2020 in anticipation of the halving. Everybody expects the price to increase around the halving, so everybody continues buying bitcoin.
Then, on the day of the halving, bitcoin surges suddenly in value before starting to plummet. All of the people who accumulated bitcoin during the early days of 2020 are now selling at the peak, causing bitcoin to drop sharply.
The Past Two Halving Aren’t Much of a Precedent
The assumption that bitcoin’s price will rise in May 2020 during the next halving is based on a problematic precedent: we only have two prior halvings on which to base that assumption.
It’s true: during the two previous bitcoin halvings, the price of bitcoin rose sharply. But these are only two halvings: it’s not much of a precedent. Theoretically, limiting supply should cause prices to rise, assuming demand stays equal. But bitcoin’s markets often behave in an unpredictable way.
The halving could disrupt miner profits, for example, causing difficulty fluctuations on the network that cause turmoil throughout the markets until the difficulty is adjusted within two weeks.
If bitcoin’s block reward gets cut in half at the same time as bitcoin’s price plummets, it could force miners to mine bitcoin at a loss for a maximum of two weeks until difficulty is adjusted, creating significant volatility.
Imagine if the printing of new US dollars was suddenly cut in half forever. Something similar is going to happen to bitcoin on May 22, 2020. On or around May 22, 2020, bitcoin’s block reward will drop from 12.5 BTC to 6.25 BTC. The new supply of bitcoin will be cut in half overnight. Bitcoin’s “inflation rate” will drop. If demand remains the same, then prices will inevitably go up. It’s simple math.
Of course, with most of the community expecting a price increase on or around May 2020, it’s also possible markets will take a different turn. A recent pull suggested 80% of the bitcoin community believes the price of bitcoin will increase after May 2020.
We just don’t know what will happen with bitcoin after the halving – but we now have less than a year to wait until we find out.