Guest Post

2020 Bitcoin Halving Explained: The perfect investment opportunity?

Just a few days after the historical 2020 Bitcoin halving, crypto investors have been psyched up for the perfect investment opportunity in BTC this year. Unawares, most Bitcoin investors expect a significant price swing to happen after the third Bitcoin halving and most certainly want to seize the moment by making a fortune out of it. 

Laying it on the line without sparking an interest or anything, it is true that there has been a rise in BTC price after the halving events. But still, it is needless to say that no one really knows when the price of bitcoin would spike. It could take a day, a month or even years.  

During the first halving, bitcoin’s market price rose by over 90% from $10 to $1, 180. Consequently, a similar pattern was observed in the second halving where BTC price spiked from $600 to $2, 800 at the end of 2016 before reaching an all-time high of nearly $20, 000 dollars in Dec.2017. 

However, given all those statistics, the million-dollar question remains: Will the past price pattern of BTC be replicated this year? Compared to the past events, bitcoin has now gained more recognition in all parts of the world, a fad that has even sparked an interest to governments to consider launching state-backed cryptocurrencies (Central Bank Digital Currency – CBDC). More, the crypto market seems to be the only one stable during these hard times of the looming pandemic – Coronavirus. 

Well, count yourself lucky as the following is all you need to know if you want to figure out when is the right time to invest in bitcoins after the 2020 halving event. 

History of Bitcoin Halving and the Outcomes 

1. First Bitcoin Halving-2012

The first Bitcoin halving occurred on 28th November 2012 after the network hit 210, 000 blocks. The halving event reduced block rewards from 50 to 25. 

Outcomes 

Following the 2012 halving, the hashrate of the Bitcoin network fell from 27.61 THash/s to 19.98 THash/s within two weeks. However, the hashrate of the network steadily rose to 60THash/s six months later. After halving, bitcoin price rose briefly from $11 to $12 before shooting to $1, 038 in a single year. Overall, the price increased by 9, 336.36% 

2. Second Halving-2016.    

The second halving occurred on 9th July 2016, with the mining rewards falling from 25 BTC down to 12.5 BTC. Before the event, the majority of Bitcoin investors sold their coins for fear of price collapse.

Outcomes 

The 2nd mining saw the hash rate rate fall from 1.56 EHash/s to 1.40 EHash/s. However, it eventually improved to 3.85 EHAS/s in seven months. It also became less profitable to mine Bitcoin past the 2016 halving event. Bitcoin price went through another price surge past the event. A month after the halving, the BTC/USD price went up from $576 to $650. After a year on 9th July 2017, Bitcoin price went up to $2, 526 before closing the year at nearly $20, 000 mark. 

The price increase post-2012-halving was higher compared to the price post-2016-halving. A possible explanation is that in 2016, the Bitcoin community was highly anticipating the halving event leading to an increased supply of Bitcoin.     

The 2020 Bitcoin Halving

The third Bitcoin halving event is slated to take place on 18th May 2020 and will see the Block reward fall to 6.25 BTC.  

Possible Outcomes 

Needless to say, Bitcoin’s price is expected to surge past the 2020 halving. From the past two case studies. Bitcoin’s price surged by an average of 2000% in a year, indicating that halving is a bullish event. In the first halving, Bitcoin prices rose by about 8,000 % in 12 months. In the second halving, BTC prices rose by 2,000% 18 months after halving. 

However, while a bullish trend is very much likely, several issues could make the price change less considerable past the halving. These issues include: 

  • Emergence of Derivative Markets– In the past two halving events, derivative platforms dealing in Bitcoin futures were non-existence. Currently, Bitcoin Futures CBOE and CME Bitcoin futures are much known by the Bitcoin community, with selling over $20, 000 contracts in 2017 alone. Bitcoin futures trading doesn’t require actual Bitcoin, thus makes mining less important. With the growth of derivatives markets, bitcoin investors can now speculate on the price of Bitcoin, borrow and sell short and make profits. This could immensely affect the price of Bitcoin past halving. 
  • Increased mining costs and mining inefficiencies may cause miners to sell-off their block rewards quite fast instead of holding on to them to sell when the market is bullish. Some miners will shut down machines due to the subsidy drop 
  • High Bitcoin trading volume- Unlike in the past, millions of Bitcoins are traded daily today. The Bitcoin in circulation to Bitcoin in blocks is higher today compared to 2012 and 2016. With such a high supply, the reduction of block rewards from 12.5 to 6.25 may not largely be felt in terms of price rise. 
  • Increased volatility- The halving event would likely increase Bitcoin volatility. With increased volatility, investors/miners would likely sell off their Bitcoin reserves and hedge funds using options to avert the effects of high volatility. 

An Opportunity for Bitcoin Investors

While a massive price spike is not assured, 2020 Bitcoin halving still presents an opportunity for bitcoin investors to make profits. However, they’ll need to trade smart and not just speculate on the price. One lucrative way of trading Bitcoin after the halving is to use derivatives such as CFDs.

Trading using derivatives enables bitcoin investors to hedge risks by taking a long or short position depending on the prevailing market conditions and also taking advantage of leverage to magnify the scope of gains using a relatively small amount of capital. Bitcoin market experts advise a long-term outlook for Bitcoin with the economic uncertainties experienced today.  

“If you have any troubles finding the best place to purchase your Bitcoins before the halving, we advise reading Bitpremier’s guide to purchasing Bitcoin in the UK

Bottom Line 

Bitcoin halving is crucial to the Bitcoin network. The event which occurs after every four years ensures the coin retains its deflationary quality and consequently, its value. What a smart way to do away with inflation woes, right? 

In the following days after the 2020 bitcoin halving event, investors should be keen when looking to capitalize on the event. The crypto space at large should note that this year’s halving event might be different from the past two. That’s because, as aforementioned, the crypto market has undergone massive transformation evinced by the derivative markets.

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Guest Author

Crypto Journalist and Editor of guest articles in CoinPedia. Also, Outreach & Partnerships Manager. Contact me: [email protected]

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