There is so much anticipation on the upcoming Bitcoin halving in the crypto world. Both investors and miners are looking for the event which is set to happen in May. It is rumored to take place on May 12th. Bitcoin halving takes place every four years, and its main aim is to make the currency deflationary so that the supply of bitcoin does not exceed the market cap of 21 million. Halving helps to keep in check the demand and supply of Bitcoin so that it still maintains its value.
Bitcoin halving was Satoshi Nakamoto’s idea due to the inflationary nature of the currency, although it is decentralized. The main people who will experience the effect of the halving effects are miners, and they will, in turn, influence the total ball game of the currency.
Some of the top 10 expected effects of the halving event include:
Increase in mining difficulty
With the bitcoin halving event, there will be an increase in the mining difficulty of bitcoin. It will be more challenging to solve the algorithms since it will be more complicated for a block to be released. That may push out some miners, especially small miners.
Lower block rewards
There will be a drop in the block rewards. The generated rewards per block will be halved so that the supply of Bitcoin in the market can be maintained. That, therefore, means that there will be lower miner profitability, which may make miners have less motivation with mining.
Change in mining trend
With fewer miner rewards, it will affect the bitcoin network in general as it depends on miners to release bitcoins. In the short term, the halving event is likely to hurt the mining of Bitcoin. There is a high likelihood that miners that have low mining power will be forced out of business or forced to change their system of operation. Digital mining may be embraced more since giant international companies mostly use it as they maximize economies of scale. They use advanced machines and cheaper sources of power, which makes mining more affordable.
If miners do not use advanced systems, it will be hard to get sufficient profitability as the overhead costs of mining may be high as compared to the rewards. Bitcoin halving will, therefore, lead to upgrade and innovation of infrastructure to ensure profitability.
In the long-term, when the price of Bitcoin reaches $20,000, there are chances that mining will be more aggressive with increased competition.
Drop in the hash rate
The hash rate is critical as it signifies the growth, stability, and security of the network. As a rule of thumb, the high the computing power, the more secure the system is likely to be. Luckily, the Bitcoin hash rate has been so high and hitting all times even though the economy is getting into a recession.
If some miners exit due to low rewards, then the hash rate will drop. This is, however, only applicable in the short term. In the long run, the hash rate will not be affected by halving since there will be less supply of bitcoin and more demand leading to a higher price of bitcoin.
A negative short-term effect on the price of Bitcoin
According to history, BTC price right before and after the two previous halving events in 2012 and 2016. It is also likely that the same will happen with the upcoming halving event. According to analysts, that occurs because miners sell just before the halving event so that they can get enough bitcoin that will finance them for sometime after the halving event. This break evens the price of Bitcoin before it finally spikes after the halving event. This makes it very beneficial for miners.
According to Alejandro De La Torre of mining pool Pooling, it makes sense for miners to do that so that they can achieve a higher break-even price in case the price of bitcoin does not rise after the halving event.
A decrease in the supply of Bitcoin
Since the block rewards will reduce by half, there will be fewer Bitcoins that will be released in the network during mining activity. That will lead to a decreased supply of Bitcoin in the network. So far, there are $18,000 Bitcoins mined, meaning it is slowly approaching is the market cap of $21,000. That means that the bitcoins supplied can only be lower.
Increase in the demand of Bitcoin
There is an inverse relationship between demand and supply. That means that when the supply is low, then the demand is likely to spike. Bitcoin being a pioneer in the crypto market, its demand will still be high. So far, most investors in the crypto market are investing in Bitcoin, and altcoins are also dependent on the cryptocurrency.
Increase in the price of Bitcoin
Even though there is an expected short term drop in Bitcoin price, the trend is set to change after some time. Historically, a halving event leads to an increase in Bitcoin prices in the long-term; the same is expected this time around. The rise in demand and decreased supply of Bitcoin will have a positive effect on the price of bitcoin.
A drop in Bitcoin inflation rate
As mentioned before, the main aim of bitcoin halving is to make bitcoin deflationary. The upcoming halving event in May expects to reduce the cryptocurrency’s annual inflation rate from the current 3.65% to 1.8%. This lower inflation will make the currency to be more stable.
More investors holding their bitcoins
So far, many investors are holding on their bitcoins in anticipation of the halving event. Likely, they will still hold the coins even after the halving event, which may create a supply deficit making the market bullish. This effect may be the main reason the price of bitcoin will rise.
There is so much that is expected, and currently, everyone is doing a countdown to much anticipated day. When you are strategic, you will smile as there are many anticipated positives amidst the negatives.
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