In a matter of minutes, the block reward for bitcoin (BTC) will be cut in half. This process is referred to as a “halving,” and it can have long-term effects on the price of BTC. These effects tend to be positive in terms of supply and demand: the fewer bitcoins are being generated, the more valuable they become according to newly increased scarcity.
Sounds good. But is all that halving staff as simple as that? We don’t think so.
It’s important to understand that complex events with many variables behave in a complex, non-linear way. Bitcoin halving is undoubtedly a complex event.
Even though we believe that halving will benefit the market in general and bitcoin in particular, even though we expect bitcoin to rise in the long run, we are alarmed by a widespread of hyper-optimistic forecasts about the bitcoin halving.
For this article, we have consulted with Alex Faliushin, co-founder and CEO of CoinLoan, risk-analyst, and trader. As a result, we’ve got three non-obvious tendencies that are worth taking into account when developing your crypto-strategy for the year 2020.
This isn’t intended to be a market prediction or guidance on how to trade the market (no trading advice ever). But we want to help you think critically about your own analytical context and approach to the major market events.
BTC will go to the moon (just not so fast)
The scarcity effect will be felt not earlier than in six months. Don't be deceived by volatility following the date of halving; it will be triggered more by speculations than by fundamentals. We’ll observe short-term volatility just because everyone is very excited or very panicked, and after bitcoin halving date everything will return to normal.
The price may reduce for a period bitcoin needs to accumulate a renewed confidence and understanding in the space. From a long perspective, this pause will help bitcoin grow even more.
Mining will tend towards monopoly
Mining is the only way for new bitcoin to be released and distributed. That’s why mining trends affect the whole ecosystem. So what is the trend expected?
Halving is going to increase the difficulty of mining. Some small and the least efficient miners may become unprofitable and turn their equipment off, while the big mining companies have a wide safety margin. Big companies will probably try to take a larger piece of the pie during the rough times.
The rough times won’t last long, however. In order to ensure a smooth and reliable network, every two weeks, based on how many blocks were mined in the period, the mining difficulty adjusts.
Effect of crypto self-purification will intensify
For the last three years, we observed weak altcoins continued to devaluate as compared to bitcoin. Uncertain times may reinforce the existing trend, so we recommend consolidating around assets you trust.
Some cryptocurrencies that were created just for fun or for making easy money survived after the crypto-winter of 2018. But there's a chance that these bad projects will disappear during 2020.
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