Bitcoin’s halving took place yesterday at block 630,000. The price hasn’t moved much since it did, but some of the cryptocurrency’s fundamental characteristics are already changed dramatically. The daily supply is slashed in half and the inflation rate is also expected to decrease to 1.8% from 3.7% where it currently stands.
Historically, the halving happens once every four years on average and so far it has been a major bullish catalyst. Hence, the majority of experts and most of the community believes that this time will be no different.
However, several reports and some well-known experts have voiced their merits that the price might actually drop.
Bitcoin’s Halving And Its Effect On Price
What happened yesterday takes place once 210,000 new blocks are added to Bitcoin’s network. The event slashes the reward miners get for adding blocks in half, and there are a lot of important things that stem from that.
The supply of freshly minted bitcoins decreases in half. Basic economic principles dictate that once the supply of an asset is decreased while the demand for it remains the same, its price should go up.
Historically, Bitcoin’s price skyrocketed after both halvings prior to this one. However, the state of the market is not a constant - it’s shifting continuously, and it’s currently remarkably different from what it was in 2016. While traders didn’t have a lot of options to bet on the declining price of the cryptocurrency back in 2016, there are plenty of bitcoin margin exchanges now that allow them to do just that.
Speculating on Bitcoin’s price has become somewhat customary for most of the traders as even prominent hedge fund investor Paul Tudor Jones recently said that the cryptocurrency is “great speculation.”
Bitcoin’s Price To Drop Post Halving
One of the thesis that a lot of analysts support is that traders have been front-running the halving and its impact on the market has already been priced in. Yet, there are those who oppose that viewpoint, including Anthony ‘Pomp’ Pompliano, who said that this couldn’t possibly be the case because the new supply needs to be met with a decrease of demand for the price to stay the same.
Moreover, since the last halving, there has been a slew of trading products, most notably Bitcoin derivatives exchanges. Traders speculate on the price of the cryptocurrency with derivatives contracts, and they don’t actually own it, rendering supply and demand principles moot to a certain extent. That’s what Meltem Demirors touched upon in a detailed thread.
In any case, if traders have anticipated an increase in Bitcoin’s price and front-ran the event, it’s possible that there would be selling pressure in the weeks following the event.
Miners-Induced Selling Pressure
Undoubtedly, those who the halving will affect the most are miners. With the block reward slash in half, mining is likely to become less profitable, and smaller operations would have hard times.
A recent Forbes report citing Coin Metrics data outlines that while block rewards are cut in half, the expenses for these operations remain constant.
“... we expect even more miners to capitulate in the months ahead.” - reads the document.
To illustrate the overall impact that miners have on the market, the report compares the annual miner revenue for 2019, which was around $5.5 billion with the total Bitcoin holdings of users on Coinbase - the largest US-based cryptocurrency exchange which they estimated at around $6.8 billion.
Put in different terms - the selling pressure that came from miners in 2019 equates to a hypothetical scenario where every single user on Coinbase sells all of their BTC holdings.
“We expect miners to follow a cycle of decreased profit margins, increased selling, capitulation, and a culling of the least efficient miners from the network. [...] Once this cycle is complete, the miner industry should return to a healthier state that is supportive of future price increases.” - concludes the report.