It is once again that time when the amount of Bitcoins created is reduced by half. As we know, Bitcoin transactions are grouped into blocks and then recorded on the Blockchain. Bitcoin Miners are the ones responsible for this duty. Each time a Miner records a block they are rewarded with Bitcoins created by the protocol. In the beginning the reward was 50 Bitcoins. In 2012 the first halving took place, where the amount created was reduced to 25 Bitcoins. This process is programed to occur approximately every four years and is not based on time but on the number of blocks mined. The next halving will occur at the closing of block number 420,000, set to take place July 9, 2016. This reward will continue to halve until the 21 millionth Bitcoin is mined, at which point no more Bitcoins will ever be created.
How will this Effect the Price of Bitcoin?
There are many speculations on how the price of Bitcoin will be affected. Bitcoin Gurus the internet over are pushing their various narratives. Many believe the price will increase dramatically. Others contend that the change is already baked into the price of Bitcoin and that after halving, the price will remain constant. According to Erik Voorhees, Chief Executive Officer of ShapeShift.io, “It’s a question of how many of the 3,600 coins being created today are being sold on the market. If they’re all being sold on the market, then the halving could cut that supply in half. If very few are being sold, then it would have less of an effect.”
But for a more accurate answer we will simply look at Bitcoin history. Based on the outcome of the previous halving we can expect major volatility and most likely a price spike. We expect that if price does move significantly higher a reversal will follow and then settle at a level the market is comfortable with. This price spike may provide an opportunity to short Bitcoin or for the astute Bitcoin investor to pick up some coins beforehand and profit on the spike.
One thing for sure is Bitcoin will continue to capture the attention of the world. As the Bitcoin network continues to develop and solidify, it becomes clear that even a major event like halving will only reassert Bitcoin’s continued existence. Even though many will pedal false facts and rumors about Bitcoin being a scam, the real scam continues to be the fiat currencies we are forced to use created by corrupt governments.