Bitcoin halving in 2020: Whether or not the next halving will have the same dramatic effect on its market price?

By Congecko News 12/24/19 4:27 AM

Bitcoin performed quite well this year in terms of price compared to the previous year but did not quite reach the level expected to motivate institutional investors to actively participate in the market. Even so, the bullish sentiment has not died down as investors and traders seem to be much more optimistic about the coin’s price performance and before the block reward halving event next year.

The “halving” event of Bitcoin in 2020

If you are not a BTC lover, you might have not heard about this “halving” event, which will cut the production of the cryptocurrency by 50% by solving complex maths puzzles. Especially, no one can control this process because it is a rule written into BTC’s underlying code by its pseudonymous creator Satoshi Nakamoto more than a decade ago.

The event, BTC will go through its third halving since its foundation in 2009, expected to occur in May 2020. Following this, the reward per block mined will drop from 12.5 BTC to 6.25 BTC. This is part of the Bitcoin’s design to become progressively scarcer over time, it should boost demand, and thus drive the price higher.

In the one-year period after two previous halvings, in Nov 2012 and July 2016, BTC increased by about 80 times and four times respectively. It is not clear whether this price increase has halved, versus other factors.

Generally, it is a big change in a market worth about $120 billion where BTC worth several billion dollars is created every year.

Graphic: Bitcoin’s halving

A strong presence of derivatives markets

Besides, in an interview for Unchained Podcast, when speaking about the effect of this event on Bitcoin’s price, Meltem Demirors, CSO of Coinshares wondered whether or not it starts drawing an upward trend, “…people always talk about is it priced in, is it not priced in… the one thing that’s different about this halving is in the prior to halving there was no directionality in the crypto market”.

Moreover, she added, people can only use BTC basically long before, while now there is a strong presence of derivatives markets such as CME and Bakkt. Therefore, it will provide traders with more options to trade derivatives.

Furthermore, she also emphasized that while the price response may be different this time around, one basic factor that will remain the same is the reduction of Bitcoin produced.

Demirors also emphasized that, while the price response may be different this time, one basic factor that will remain the same, is the reduction of Bitcoin produced. She even pointed out that the demand for cryptocurrencies is increasing, taking into account trading activity on the Square Cash Cash app, Grayscale products, etc.

In addition, Jeff Dorman of Arca, a U.S. crypto investment firm also said that BTC derivatives markets that still nascent will point to higher volatility around the time of the halving. Especially, such volatility in the BTC market tends to benefit quantitative hedge funds and high-frequency traders seeking to make money from fluctuating cryptocurrency prices.

However, miners holding large inventories of the coin, volatility can also be an obstacle. For them, the stability of prices gives higher predictability for investing in new equipment.

Currently, Bitcoin is only about 5 months away from halving and prices are having trouble when broken from the 2019 high of nearly $ 14,000, now it’s around $ 6,700 and mostly in a downtrend over the past six months.