At approximately 2:45 pm EST today, the Bitcoin network will automatically adjust to reduce the supply of new bitcoins minted daily by half. For the next four years, the reward to miners for securing the Bitcoin blockchain and processing transactions will decrease from 12.5 to 6.25 coins per block, or from 1,800 to 900 bitcoins per day.
Each Bitcoin network block contains the details of confirmed transactions published and recorded on the Bitcoin ledger (or blockchain). The Bitcoin network produces one block approximately every 10 minutes – importantly, the frequency of this schedule never changes. The Bitcoin network algorithm is programmed to automatically adjust in difficulty depending on the amount of computing power operating on the network. Accordingly, it is not possible to increase the frequency with which bitcoin can be generated if the price increases (and demand goes up), as well as the reverse.
If price decreases and demand drops making the operation of mining bitcoin less profitable, computing power withdrawn from the network causes the difficulty of processing transactions to decrease so that no matter the state of supply and demand or price the emission schedule for Bitcoin remains the same and reducing every four years until the last bitcoin is mined around the year 2140. The current total issued supply of Bitcoin is approximately 18.4 million bitcoins. More than 98% of the maximum supply will be mined by 2030.
In 2012, on November 28th, the number of new bitcoins issued every 10 minutes dropped from 50 bitcoins to 25. The price on that date was $12.35 – 150 days later the price was $127.00.
In 2016, on July 9th, the number of new bitcoins issued per block dropped from 25 to 12.5. The price on that date was $650.63 – 150 days later the price was $758.81.
Today, when the number of new bitcoins issued per block will drop from 12.5 to 6.25, the price of $BTC has ranged between $8,500 and $9,100.
Bitcoin’s history and the law of supply and demand suggests that today’s halving will be a significant catalyst for the next phase of Bitcoin’s price action and adoption. In the immediate short term, I expect the halving to be a sell the news event setting up for the final phase of accumulation at prices below $10,000.
Notwithstanding the decrease in new available supply after today, there are other structural and market dynamics that may overwhelm demand and bring additional existing supply to public exchange platforms for sale over the next several weeks. Principally, that miners will see a 50% decline in the revenue generated from mining activity and will therefore need to increase the number of bitcoins they sell to maintain profitability. Miners typically sell a portion of their generated bitcoins regularly to cover operating costs such as electricity, staff, facilities operations, etc.
$BTC price increases observed leading up to the halvings may be associated with miners holding back on their usual sales volume in order to smooth out the impact of the decreased post-halving reward schedule, thereby restricting supply available to the market just as excitement and positive sentiment associated with the halving builds among bitcoin buyers. A run up in price is therefore to be expected, and we have seen this in April and May as $BTC recovered from its March 12th low of around $3,900 to a May 6th high around $10,000.
Interest in Bitcoin among the traditional investor community shows signs of growth and renewed focus during this remarkable time of coordinated Central Bank lending and money creation. The table has been set for the adoption of Bitcoin as never before in its prior 11-year history, however, I find the majority of crypto market participants and believers are too optimistic regarding the timing of when prices will begin to reflect our new reality.
I continue to watch for new lows in equity markets, trouble in bonds, and counterparty failures to have spillover effects shaking the overall finances and confidence of crypto holders with weak hands and investors needing liquidity to meet other obligations. Any weakness in crypto markets at such a time – even 20 to 50% drops over a period of one, two or three days – could signal the final bottom and foundation for resetting the world’s currencies and other assets with public and permissioned blockchain network infrastructure over the next 9 – 18 months.
While Central Banks are poised to issue their own digital currencies (CBDC) in response to the unfolding global financial and economic crisis, decentralized public crypto assets have properties incomparable to what governments and central authorities can offer. Exciting times ahead.
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