The Bitcoin Halving – Previous Effects on Share Price
In May 2020 it is “halve-time”. The fee received by a miner for securing the blockchain network in the form of newly created bitcoins will be halved. The term known as “halving” will half bitcoin’s inflation rate. Thus, it is important to ask, what impact have the past halvings had on the price of bitcoin?
Bitcoin money supply and inflation
Bitcoin, as a digital currency, has a predefined limit on the supply side. The maximum number of bitcoins anchored in the digital asset’s underlying code is limited to 21 million. There are currently almost 18 million coins in circulation. Newly created bitcoins are paid to miners, who contribute computing power to ensure the functionality of the blockchain system. Currently, there are 12.5 bitcoins per newly created block, which corresponds to an inflation rate of approximately 3.7% p.a. However, the payout for the minders halves every 4 years. The output speed and thus the inflation rate decreases over time.
As with many types of assets, the bitcoin price is ultimately dependent on supply and demand. In the medium term a supply shortage is basically positive, this is a principle in the financial markets — rarity increases value. One approach that supports this thesis is the stock-to-flow model. It provides a more detailed understanding of the supply and demand situation of monetary goods. It puts the already existing stock in relation to the annual increase through production (flow).
Historical price movements around the bitcoin halving
So much for the principles around the bitcoin money supply. Since from an economic point of view, halving the inflation rate has a long-term effect and as a result, there have been stronger price movements in the bitcoin exchange rate around the respective halvings in the past:
In the past the halving has always proved to be an important catalyst for the bitcoin price. Already before the halving, but also months after the halving, the price of bitcoin increased significantly. In the past halving occurrences, it was usually the case that bitcoin had started a new bull market about a year before the event.
In the following segment, we will take a closer look at the bitcoin price movements before and after the halvings that have already taken place. Graphics and calculations are taken from the article by the user “Rekt Capital”, which is published on Medium.com.
Bitcoin Halving Number 1 – November 2012
(Source: Medium.com)
The first bitcoin halving took place in November 2012. Within 513 days, bitcoin whent on a bull-run of over 13,000%. The price rose from $2.01 to $270.94. The first halving led to significant growth and a bull cycle. After bitcoin had reached its peak of $270.94, a bear market began in 2013, which caused the price of bitcoin to fall by about 80%. This bear market lasted for about 87 days. Bitcoin Halving Number 2 – July 2016
(Source: Medium.com)
The second bitcoin halving took place in July 2016. There it took 1068 days for bitcoin to gain over 12,000% and climb from the $174.01 mark to the previous ATH (All-time High) of $20,074. After that bitcoin went into a 51-week bear market, which reached its low point in mid-December 2018. Halvings 1 & 2 show similar price patterns – time frame of the price increase is slowing down In both cases the halving has ensured the beginning of a new bull market. The price of bitcoin rose significantly both before the halving and in the months after the halving. Bitcoin rose from the pre-halving low to a post-halving high, which constituted a 12,000 – 13,000% increase. Although the price pattern of the price increases was similar, the period of the increase was longer. During the first halving, Bitcoin took about 511 days to rise from the lowest price before the halving to the highest price after the halving. In the second halving, the upward movement to the new high lasted 1068 days. Thus, to reach the new all-time high after, the second halving took almost twice as long. Previous halving tendencies In the past, halving has proven to be an important catalyst, driving bitcoin into a new bull market. The greater part of the exponential price increase occurred after the halving of bitcoin showed stronger and faster growth before the first halving than before the second halving. The price of bitcoin has set a new all-time high after every halving. The market was in a bearish phase in the months before the bitcoin halving in May 2020. The exact date of the third bitcoin halving will probably be May 17, 2020. Between the lowest price of bitcoin in mid-December 2018 ($3,152) and the third halving there are about 519 days. In the second halving the bitcoin price reached its lowest point about 544 days before the second halving. The price movements regarding the third halving have so far shown some similarity in terms of price pattern. It should be mentioned that historical price movements can be useful in analyzing price patterns. They reflect historical investor behavior. Even if historical patterns are similar, they are no guarantee for future movements. Disclaimer All information in this publication is for general information purposes only. The information provided in this publication does not constitute investment advice and is not intended as such. This publication does not constitute an offer, recommendation or solicitation for an investment in any financial instrument including crypto-currencies and the like and is not intended as an offer, recommendation or solicitation. The contents contained in the publication represent the personal opinion of the respective authors and are not suitable or intended as a basis for a decision. Risk Investments and investments, especially in crypto-currencies, are always associated with risk. The total loss of the invested capital cannot be excluded. Crypto-currencies are very volatile and can therefore be subject to extreme exchange rate fluctuations within a short period of time. * Originally published in German at CVJ.ch
Responses