How will the 2020 Halving Impact Bitcoin Price?

How will the 2020 Halving Impact Bitcoin Price?

Last Updated: 01/10/2020

Choosabroker details the most significant event of the 2020 calendar year for Bitcoin. With the majority of analysts anticipating significant price increases as the halving approaches, our team explains what exactly this event is and how to potentially capitalize on any price movements which may occur.

Everybody in the crypto industry is speculating about the impact the 2020 halving will have on the price of Bitcoin. Although there has only been two Bitcoin halvings to date, both have resulted in significant price increases in the years following these halvings.

What is the Bitcoin halving?

Bitcoin was coded with a predetermined inflation schedule. Every 210,000 blocks that are added to the Bitcoin blockchain results in less bitcoin being issued into existence. With Bitcoin block times equating to roughly 10 minutes, this means that approximately every four years, bitcoin undergoes a significant decline in the number of new coins being created.

When the Bitcoin network initially launched, 50 bitcoin was rewarded to each miner who added a block to the ledger. In 2012, this reward was reduced to 25 bitcoin and in 2016, the reward further reduced to 12.5 bitcoin. The reward is scheduled to further drop to 6.75 bitcoin around mid-2020.

How will the halving impact Bitcoin price?

There are several theories anticipating how the bitcoin price will be impacted by the halving. Most theories point to Bitcoin needing to adjust to a higher price to account for the decreased supply issuance.

Economics 101 would suggest that with the supply issuance set to further reduce, the price will need to readjust to a higher equilibrium to cater to a demand level which stays roughly the same. When the potential for an increase in Bitcoin users and investors over the coming years, there is even more reason to believe that price will increase after the halving.

Unchained Capital analysed what happened after the last Bitcoin halving in 2016. It was estimated that from 2016 to 2019, the demand for bitcoin increased by a factor of 12 whereas the supply only increased by 10%. Over this timeframe, the value of the Bitcoin network multiplied itself by ten.

Source: Unchained Capital

While it can’t be assumed that the same cycle will repeat itself over the next market cycle, the demand-supply mismatch will likely still be present once the Bitcoin network undergoes its next halving. Some analysts believe the halving event is accounted for in the Bitcoin price as the halving approaches. The Bitcoin price performance so far in 2020 has been promising.

Bitcoin Price in 2020…

Bitcoin recorded highs above $14,000 in Q2 2019 and has undergone sharp depreciation since. However, Bitcoin recorded some significant price increases during the first week of trading in 2020 with price appreciating over 17% during five days of trading.

The halving cannot be directly attributed to this bitcoin price increase. Other factors also come into play. For instance, from a technical analysis perspective, a head and shoulders reversal pattern has been forming since mid-November. Analysts have also noted that bitcoin’s movements at the start of 2020 have been closely correlated with those of gold with both asset classes reacting to macroeconomic developments between the United States and China.

How can I capitalize on the halving?

There are several online brokers which facilitate trading in the cryptocurrency markets. Whether you consider the upcoming halving to be bullish or bearish for Bitcoiin, there are brokers that will allow you to capitalize on your outlook.

With several cryptocurrency exchanges after suffering problems over recent years, cryptocurrency brokers offer a viable alternative to trading the cryptocurrency market. The best online brokers offering cryptocurrency trading services are currently XTB, EasyMarkets, eToro, and City Index.

All of these brokers are regulated and provide compensation to users in the event of bankruptcy. All are also CFD brokers which provide products that allow traders to go both long and short.

eToro is one of the more interesting options to consider for cryptocurrency trading and specializes in offering social trading services. Social trading enables users to see the positions of other traders and either automatically follows their trading strategy or adjusts their own positions accordingly.

eToro’s extensive social trading network will allow users to view how other traders are taking positions for the upcoming halving. XTB, EasyMarkets, and City Index are also all strong options to consider for trading the cryptocurrency markets. Furthermore, several brokers provide traders with access to a wider range of cryptocurrency products.

Broker Cryptocurrencies Offered
eToro Bitcoin, Ethereum, Ethereum Classic, Dash, XRP, Litecoin, Bitcoin Cash, Stellar, NEO, EOS, Cardano
City Index Bitcoin, Bitcoin Cash, XRP, Litecoin
XTB Bitcoin, Ethereum, Dash, XRP, Litecoin, Stellar, EOS, Monero, IOTA
easyMarkets Bitcoin, Ethereum, XRP

How can I capitalize on the halving?

There are several online brokers which facilitate trading in the cryptocurrency markets. Whether you consider the upcoming halving to be bullish or bearish for Bitcoiin, there are brokers that will allow you to capitalize on your outlook.

With several cryptocurrency exchanges after suffering problems over recent years, cryptocurrency brokers offer a viable alternative to trading the cryptocurrency market. The best online brokers offering cryptocurrency trading services are currently XTB, EasyMarkets, eToro, and City Index.

All of these brokers are regulated and provide compensation to users in the event of bankruptcy. All are also CFD brokers which provide products that allow traders to go both long and short.

eToro is one of the more interesting options to consider for cryptocurrency trading and specializes in offering social trading services. Social trading enables users to see the positions of other traders and either automatically follows their trading strategy or adjusts their own positions accordingly.

eToro’s extensive social trading network will allow users to view how other traders are taking positions for the upcoming halving. XTB, EasyMarkets, and City Index are also all strong options to consider for trading the cryptocurrency markets. Furthermore, several brokers provide traders with access to a wider range of cryptocurrency products.

Are there any other important factors to consider?

Theoretically, price prospects look bullish for bitcoin as halving events take place as the asset becomes increasingly scarce. However, scarcity is only part of the story.

There are several assets with scarcer properties than Bitcoin, especially when digital assets are taken into account. Recent research has highlighted than the energy being invested into the network is also closely tied to the value of Bitcoin.

One concern highlighted by industry leaders is that the incentive for miners to secure the Bitcoin network will drop as the block reward declines. Therefore, the activity of miners on the network after the Bitcoin halving takes place will be an important development to monitor.

Metrics such as hash rate and difficulty should be carefully monitored after the halving to gauge the impact the event has had on mining activity. Websites such as BTC.com can be used to find such metrics.

Next Steps…

The Bitcoin industry is preparing itself for the upcoming halving. Miners have been transitioning their older hardware to regions with lower electricity so that it can remain profitable beyond the halving.

Analysts and speculators are also discussing their theories relating to how the halving will impact Bitcoin price. Those traders who perform best will be those who are the most familiar with the Bitcoin market.

If you are new or experienced to Bitcoin, you can increase your exposure to this market by choosing the right cryptocurrency broker. Our team of analysts at Choosabroker are here to help you choose the right broker and to help you trade profitably as the halving approaches.