Bitcoin is designed to have a maximum supply of 21 million Bitcoin, and this maximum supply is achieved by halving the block reward every 210,000 blocks, which is once every four years.
Initially, the block reward was 50 Bitcoins, and since then, this has been halved twice, to 25 Bitcoins and currently 12.5 Bitcoins.
According to The Halvening, the next Bitcoin block halving will occur in May 2020 when block 630,000 is mined. As of this writing, Bitcoin is at block 554,800, so there are 75,200 blocks until the halvening. This corresponds to 522 days when using a block time of 10 minutes, so the math on The Halvening seems to be accurate.
In May 2020, the block reward will decrease to 6.25 Bitcoins, and this has the potential to impact the Bitcoin market. Here, we’ll explore the past two block reward halvenings to consider what may happen in May 2020.
The first block halvening occurred on Nov. 28, 2012, and the block reward was slashed from 50 Bitcoin to 25 Bitcoin. The GPU that mined block 210,000 was actually sold for $850 in August 2013, which was around seven Bitcoin at the time, since it is an important piece of history.
The price of Bitcoin reached a local minimum of $9.50 a month before the halvening and steadily rose to $13 by the time the halvening occurred. Then, the biggest Bitcoin rally so far took place, and Bitcoin skyrocketed to $260 in early April 2013. That rally leveled off during the summer, before Bitcoin rallied to $1,160 in November 2013, almost exactly one year after the halvening.
It is possible that the halvening contributed to Bitcoin’s price rise during 2013. The number of Bitcoin mined annually decreased from 2.628 million to 1.314 million when the halvening occurred, representing a significant decrease in downwards pressure on Bitcoin’s price from miners selling their earnings.
The speculation that the halvening would decrease Bitcoin inflation and therefore lead to a higher Bitcoin price may have been enough to initiate the rally in 2013, especially since Bitcoin was gaining mainstream recognition, and adoption was increasing. Essentially, the halvening may have provided enough of a push to start a speculative frenzy, and once the rally was underway, a positive feedback loop of speculation sustained the rally.
The most recent block halvening was on July 9, 2016, when the block reward went from 25 Bitcoin to 12.5 Bitcoin. The price of Bitcoin was exiting a long bear market when this halvening occurred, with Bitcoin declining to as low as $150 during 2015. A sharp rally occurred in May and June 2016, just prior to the halvening, from $440 to $780. This could have possibly been due to speculation regarding the halvening leading to less inflation and higher Bitcoin prices.
This halvening rally perhaps contributed to starting the overall rally that eventually led to $20,000 Bitcoin in December 2017, although we can’t say that for certain. The decreased inflation rate of Bitcoin, from 1.314 million Bitcoin to 657,000 Bitcoin, certainly removed some selling pressure from the market, but this effect was not that significant when considering the overall trading volume of Bitcoin during the 2017 rally.
It is likely that a mini-rally will occur before the third halvening in May 2020. However, whether this rally persists long term depends on the overall market situation. If the Bitcoin market is in a state of rapidly increasing adoption surrounded by good news as we saw during the past two halvenings, then the halvening could be the push needed to start a speculative feedback loop that dramatically increases the price of Bitcoin. However, if the overall market situation is negative, like the 2018 bear market, then a halvening rally would probably die out quickly.
This is especially true considering the annual inflation of the circulating supply of Bitcoin is only being cut from 657,000 Bitcoins to 328,500 Bitcoins, 4 times less than the first block halvening. With each successive halvening, the impact of block halvenings on Bitcoin’s market will probably decrease, until eventually, the effect is negligible.