The long-awaited third block reward halving is less than a month away for Bitcoin, and sentiment indicators are pumping through the roof. Google searches for “Bitcoin halving” have seen an exponential increase in 2020, as per The Next Web, April 15, 2020.
The supply reduction that comes through as a result of Bitcoin’s block reward halving will have a multifaceted effect on the ecosystem. On one hand, it will temporarily shake out smaller miners, rendering them to the sidelines till profitability returns. Meanwhile, larger miners, with a lower tendency to sell coins, will mine at a loss – or slight profit – and hoard coins, reducing orderbook supply for Bitcoin.
Supply and demand control the market, and these are also the primary drivers for the theory that the halving will cause a price appreciation.
Demand for Bitcoin remains a fairly uncertain frontier. With the global economy in turmoil, demand for risk assets may significantly decline. However, as a hedge against government authority, Bitcoin’s qualitative value shines through, providing the ecosystem with a ray of hope.
There are now over 10,500 addresses that have over a million dollars of BTC in their addresses. A few months before the 2016 halving, Google trends showed a similar increase in searches for “Bitcoin halving”, but the scale is much higher this time.
What to Expect From the Halving
An initial shock to the economic system of Bitcoin is bound to happen as miners get used to operating with a smaller share of rewards. Some believe miners will just get and quit if mining becomes unprofitable. But this undermines the role of emotion, which is evidenced as a driving factor – even for miners.
Bitcoin miners have the most to lose by leaving, as they hold significant stacks of BTC and own specialized equipment that cannot be easily sold for other purposes.
What is believed to be the ecosystem’s most vulnerable participants are actually the most invested. If anyone rescues Bitcoin, it will be the miners, as they have the strongest incentive to do so.
How this plays out cannot be simulated or predicted on a granular level, as the market has dramatically changed over the last four years.