Bitcoin: The 3rd halving is coming

Intermediate

Crypto currency has a reputation for ‘get rich quick’ and, therefore, attracts many new traders. Since its inception, Bitcoin became one of the biggest bubbles in recent market history that burst during December 2017 after hitting the astonishing $20,000 mark. After continuously losing ground all the way down to $3000 level, we are looking at 2020, that could set up the next bullish trend because of an event expected this year – Bitcoin halving.

What is Bitcoin halving?

Bitcoin halving is literally cutting the supply of existing Bitcoins in half. Bitcoin protocol has 2 rules: supply of Bitcoin is finite, limited to 21 million and reward is set to be reduced by 50% every 210,000 blocks. For example, if a miner receives 12.5 Bitcoins for solving a block, after halving he will receive 6.25 Bitcoins, as expected this year.

It is done to limit the number of Bitcoins in the market. After all, if there is an unlimited potential for the number of Bitcoins, their value will plummet because of oversupply. Think of the difference between ‘fiat’ currencies and gold. With ‘fiat’ currencies central banks can print as much as they want, eventually, causing depreciation by over-saturating the market. Control of inflation becomes problematic. Just look at the EU with their quantitative easing. With gold, on the other hand, there is only so much gold in the world and central banks can’t ‘print’ it, so gold maintains its market value. The same principle is applied in Bitcoins as not to repeat the mistake of ‘fiat’ currencies. By limiting the total number of Bitcoins, they maintain market conditions of demand and supply. And that is why halving was created.

Past halvings

There have been 2 halvings since the launch of Bitcoin – November 28 2012 and July 9 2016. Based on calculations from previous data, it is expected that the next halving will happen in May this year. So, traders are anticipating big moves from Bitcoin in 2020.

While there was not much to go on with the 1st halving in 2012, since Bitcoin had been launched just 3 years before that, on the 2nd halving, there is plenty of data and chart price action for analysis. So let’s take a look at the 2nd halving.

bitcoin second halving

The chart shows a spike at the end of 2013, culminating in fresh all time highs around $1160 on November 30. Notice that Bitcoin started 2013 At around just $12. That’s a 9566% rise in on year!!!  From there, aggressive profit taking took place and we saw a slump over the next couple of years down to the low of $150 in January 2015, respecting the weekly 200 SMA. That’s quite a ride! The 2nd halving happened on July 9th 2016 after the price tested the 61.8% Fibonacci retracement level and bounced. After halving Bitcoin lost in value, since halving cuts the reward. Eventually it broke the rising channel in August and started the next bull rally that lasted all the way until December 2017, when we saw that amazing bull run to the $20,000 mark.

Halving allows more Bitcoins to be mined, with increased supply, traders and investors jump in the market to get their hands on those Bitcoins, pushing the demand. So that’s what happened last time.

Next Bitcoin halving

bitcoin chart

This year, based on calculations, the halving should happen in the week starting May 18 2020. Looking at the current chart, it is impossible not to notice how similar it is. Price action is repeating the path before the 2nd halving. We have already formed a channel after rejecting the 61.8% Fibonacci level after respecting the weekly 200 SMA. The difference is that this time we are starting to go up before the halving, but the falling wedge is still holding. That is why so many traders are looking at 2020 as the next bull run for Bitcoin. It took 2 years and 8 months from the peak of 2013 to the 2nd halving. Current chart shows that it will take 2 years and 5 months from 2017 highs to the 3rd halving.

But is it the same this time…?

The expectation overall is that the next bull run is coming, that’s why investors are both giddy and nervous. If the halving is expected, why is it not priced in yet? Or what if the jump up to the $14,000 level in June 2019 was pricing it in already? Overall, whichever way it goes, 2020 is shaping up to be an exciting year for cryptos. And since all traders believe that, it might just become a self-fulfilling prophecy.

Editor

Anton is an accomplished Director at Markom Development Ltd where he combines cross functional competencies in staff management, operations planning, customer retention and strategy development. BU... Continued

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