The anonymous creator of Bitcoin, Satoshi Nakamoto, designed the Bitcoin network to release bitcoins on a specific schedule, a feature that was baked into the protocol and could never be modified. Every 210,000 blocks, or approximately 4 years, the number of bitcoins released per block, which started at 50 BTC, is divided in half. This is known as the halvening.
Historically, each time the Bitcoin block reward has halved resulted in an exponential price increase commonly referred to as a bull market. The rationale behind this is derived from Bitcoin’s limited supply, and the supply-demand relationship. As more people become aware of Bitcoin and its usefulness, they will want to hold it. Because there are only a certain number of bitcoins in existence, the currency grows with its price. From a miner’s perspective, when the number of newly released bitcoins is cut in half, the resources that go towards mining bitcoins are producing fewer bitcoin than before, resulting each bitcoin mined being more expensive to create. Not only will each bitcoin be more expensive to produce, assuming miners sell bitcoins to cover their mining costs, there will also be half as many bitcoins available to sell after the halvening.
From an investor’s perspective, the halvening can be visualized in the following example. Assume that there is a certain amount of money flowing into Bitcoin each day, say $100 million. If $100 million keeps coming into Bitcoin every day, then after the halvening, there will be half as much sell pressure (miners selling bitcoins to cover costs) as before, resulting in more buying activity than selling.
Below is a visualization borrowed from ihodl.com of the previous bitcoin halvenings and bitcoins relative price movement. This summarizes what happens around each time bitcoin’s block reward is cut in half.
If trends continue to mimic the past, we can expect bitcoin prices to be at least ~50 times higher than its current price, according to David Bailey, CEO of BTC Media - the company that’s hosting Bitcoin 2019.
Bailey tweeted in March 2018 that Bitcoin prices can be expected to be around the $250,000 range shortly after the next halvening in 2021.
David Bailey will share the stage with fellow Bitcoin enthusiasts like Tuur Demeester, Tim Draper and more. For more information about Bitcoin 2019’s bullish speaker lineup, visit https://www.bitcoin2019conference.com/speakers for our full lineup.
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