Bitcoin’s block reward got halved to 6.25 BTC on May 11, 2020, resulting in the daily production plummeting to 900 BTC from about 1,800 BTC. Reduced supply can have an impact on the price, and this creates a lot of expectations among the observers in the Cryptocurrency Space.
Bitcoin when it was launched in 2009, it came with a schedule. Miners in the ecosystem get paid a reward every 10 minutes for finding a block and adding it to the Blockchain and this reward reduces by 50 per cent once every 2,10,000 blocks – roughly every four years – until the maximum supply of 21 million bitcoins has been generated by the network years.
The initial reward was 50 BTC per block. The reward reduced to 25 BTC and 12.5 BTC after the first and second halving respectively. On May 11, the reward will further reduce to 6.25 BTC.
This ensures that Bitcoin’s total supply will remain just below 21,000,000 Bitcoins forever, enforced by the protocol rules and social consensus of the Bitcoin network. This is the reason why Bitcoin is considered a truly scarce resource and with every halving the fresh supply becomes even harder to come by.
The halving creates an interim period which is popularly named after the block reward. During the 50BTC era, 10.5 Bitcoins were produced. The second and third era produced 5.25 Bitcoins and 2.625BTC respectively. By May 11, we had 87.5 per cent of all the Bitcoin ever to be in existence produced.
This halving is even more special in the sense that every other Fiat currency, especially Dollar is going through printing spree, Bitcoin will go through a “Quantitative hardening”. This would be in complete contrast to the macro trends and makes speculators bet hard on a price increase. And the price of Bitcoin is already up by 20 per cent this year while every other investment product is struggling to stay in the positive territory.
Bitcoin has been one of the most difficult assets when it comes to forecasting prices. So, it may be difficult to exactly predict how the price movement will be. However, if we must go by history, the first and second halving was followed by significant increases in Bitcoin price.
While it is hard to pin price movements of decentralised currency to specific events, the first and second halving was followed by significant increases in Bitcoin’s exchange rate. The bitcoin price rose from $2 to beyond $1,000 during the days after first halving, while the price increased from a meager $645 to just shy of $20,000 in the months that followed second halving. The bull run in 2017 brought a lot of new users, applications, and awareness to the Cryptocurrency Ecosystem and we must wait and watch how Bitcoin will behave in the months following third halving. Regardless of the price increase or decrease, this event has obtained the attention of a lot of observers.