Bitcoin’s Historical Block Reward Halving Performance: What it Means for Price & Supply Landscape
The countdown of Bitcoin rewards halving, one of the most awaited event and historically bullish trigger, is on.
Just a little year away, expected to be on May 24, 2020, this third halving will see the block reward for miners on the Bitcoin network decrease from 12.5 BTC to 6.25 BTC. Till now, 17.6 million BTC which is about 84 percent of the total supply has been mined.
In its latest report, Grayscale analyses the significance of this “multifaceted” event in terms of price and supply.
Bitcoin's "block reward halving" is expected to take place in May 2020. What does it mean for the $BTC supply landscape? @Matthew_C_Beck looks into it in our latest note: The Next Bitcoin Halving https://t.co/8KP32EbS8D pic.twitter.com/UT8ZB7HEjP
— Grayscale (@GrayscaleInvest) March 19, 2019
Halving is a core characteristic of Bitcoin’s economic model that ensures the fair and transparent distribution of BTC through open competition and incentivizing the miners to validate transactions while preserving the economic principle of scarcity.
Change in Investors Appetite for Risk
Historically, in the one-year period following the first and second Bitcoin halving, its price rose by about 81x and 3x respectively.
Though some investors in the crypto space have a short-term bias and given the fact that a large number of existing bitcoins holders are those investors that enter the market in the last three years only, this event is uncharted territory for many.
As of March 15, 2019, 1,800 BTC per day has been minted whereas after this halving 900 BTC will be minted per day. So, for a scarce asset like Bitcoin, “any constraint on supply” will have major implications on its price.
Today, Bitcoin is about 80 percent down from its peak. This is similar to the periods leading up to the November 2012 halving that saw over 90 percent decline and the July 2016 halving that had more than 80 percent decline.
“The latest selloff appears to be driven by cyclical macro forces and changes in investors’ appetite for risk rather than network fundamentals,” states the report.
Large Drawdowns aren’t Unique to Digital Assets
When it comes to the health of the Bitcoin network, after seeing a brief dip in the first half of 2018, the network activity has stabilized and for the last few months showing modest increase.
This, the report says, is similar to the decline and subsequent rise in the twelve to eighteen month periods in the past two Bitcoin halvings. Similarities just don't end here as they can be seen in the investment activity as well.
“Many investors view large capital inflows relative to asset prices as a fundamental sign of perceived value and potential future price momentum. In December, this metric reached its highest level since the second quarter of 2015, the bottom of the last bear market and approximately fourteen months prior to the July 2016 halving.”
In its report, Grayscale concludes that large drawdowns aren’t unique to digital assets and take place in all asset classes and markets.
Upcoming halving, improving network fundamentals, the confluence of discounted price, and strong relative investment activity makes an attractive entry point into Bitcoin for investors with high-risk tolerance and multi-year investment horizon.