Key highlights:
- Every 4 years, the rate at which new BTC enters the circulating supply is cut by half
- With the 2020 Bitcoin halving, the reward received by miners for each block will fall from 12.5 to 6.25 BTC
- Halvings are generally perceived as positive events in the cryptocurrency community
Bitcoin halvings are events baked into the Bitcoin protocol and they trigger approximately every 4 years. When a Bitcoin halving is triggered, BTC miners receive only half the reward that they were receiving before the halving. Bitcoin investors are usually excited about upcoming halvings as they are seen as a positive influence on the Bitcoin price.
Bitcoin halving countdown
Bitcoin halving explained
If you have been following Bitcoin recently, you might have seen plenty of people talking about a Bitcoin “halving” and speculating the potential it might have on the price of BTC. In this article, we will be taking a quick look at what a Bitcoin halving is.
First, let’s cover some of the very basics. Bitcoin is a cryptocurrency with a controlled supply. The maximum amount of BTC that can ever exist is capped at 21 million. However, less than 21 million BTC currently exist, as new BTC must be unlocked through mining, and this process is estimated to conclude in 2140, when there will be no BTC left to mine and miners will be compensated by transaction fees alone.
When will the last Bitcoin be mined? ?
Bitcoin is designed so that blocks are mined in intervals of approximately 10 minutes. The miner that successfully mines a block receives the block reward to compensate them for using their resources to secure the Bitcoin network. When the Bitcoin network first went live, this block reward was 50 BTC. Now the block reward is 12.5 BTC - with around 144 Bitcoin blocks being mined in 24 hours, approximately 1,800 BTC enters circulation each day.
Why is the reward lower now? The answer are the two Bitcoin halvings which occurred in 2012 and 2016. Bitcoin is designed so that every time 210,000 blocks are mined, the block reward decreases by half. The latest 210,000-block countdown has been in effect since July 9, 2016, when the most recent halving occurred. The next Bitcoin halving, which is expected to occur on May 22, 2020, will cut the block reward from 12.5 to 6.25.
Bitcoin halving dates
So far, there have been two Bitcoin halvings, with the third expected to occur sometime in May - estimates on the exact date vary. The 2020 Bitcoin halving will be triggered when block 630,000 is mined. The closer we get to block 630,000, the easier it will be to accurately estimate exactly when the Bitcoin halving will happen.
Here are the dates for both previous and upcoming Bitcoin halvings. The block reward reduction is also included.
- First Bitcoin halving: November 28, 2012 (50 BTC to 25 BTC)
- Second Bitcoin halving: July 9, 2016 (25 BTC to 12.5 BTC)
- Third Bitcoin halving: May 2020 (12.5 BTC to 6.25 BTC)
- Fourth Bitcoin halving: Likely betwen March and June 2024 (6.25 BTC to 3.125 BTC)
What will happen when Bitcoin halves?
Bitcoin halvings are highly anticipated events by practically all BTC investors - even though there's countless theories on how halvings impact Bitcoin, halvings are generally seen as important events and almost every BTC investor has an opinion on them. Here's how the price of Bitcoin behaved 3 months and 1 year after each Bitcoin halving:
Halving date | Price at halving | After 3M | After 1Y | Notable events |
---|---|---|---|---|
Nov 28, 2012 | $12.2 | $33.4 (+174%) | $1,030 (+8,340%) | Mt. Gox collapses in Feb 2014 |
July 9, 2016 | $660 | $625 (-5%) | $2,550 (+286%) | BTC $20,000 ATH in Dec 2017 |
May 11, 2020 | $8,600 | $11,650 (+35%) | $56,300 (+554.6%) | COVID-19 pandemic |
Bitcoin halving price predictions
Bitcoin investors closely follow Bitcoin’s halving cycles, as each halving reduces the supply of newly-minted BTC entering the market, making it more scarce. In theory, this should have a beneficial impact on the price of BTC, and Bitcoin’s price history gives weight to this theory, although we have to keep in mind that we are only dealing with a sample size of 2.
Historical Bitcoin price chart with halving dates marked. Chart source: TradingView
From the date of the first Bitcoin halving to the date of the second Bitcoin halving, the price of BTC increased by +5,224%. If we compare the current price of Bitcoin to the price of Bitcoin at the date of the second halving, BTC has seen a further increase of about +1,240%.
Bitcoin hash rate
As we can see in the picture below, the long-term climbing hashrate trend of the Bitcoin network was mostly unaffected by previous Bitcoin halvings. However, it will certainly be interesting to follow what happens to the Bitcoin hashrate following the 2020 Bitcoin halving.
Bitcoin hashrate chart with Bitcoin halvings marked. Chart source: Blockchain.com
We might see a drop in the Bitcoin network's hashrate
If the price of Bitcoin doesn't increase in response to the reduced issuance, we could see a reduction in the Bitcoin network's hashrate as some miners might not be able to justify running their machines when the block reward is cut in half. As an example, we can take a look at what happened to Litecoin's hashrate after the 2019 Litecoin halving (Litecoin has a practically identical halving mechanism as Bitcoin). The more hashrate a proof-of-work cryptocurrency has, the more difficult it is to attack or shut down.
Image source: BitInfoCharts
Previous Bitcoin halvings
Now, let's take a look at how the Bitcoin market and the Bitcoin hash rate behaved after the previous Bitcoin halvings.
2012 Bitcoin halving
When the first Bitcoin halving happened in late 2012, BTC was trading at about $12.2. In early 2013, the BTC price started to grow rapidly, and 2013 turned out to be an extremely bullish year for Bitcoin. BTC reached a price of over $1,000 dollars before the year was over, but the collapse of the biggest cryptocurrency exchange at the time (Mt.Gox) had a substantial impact on the market.
Bitcoin entered a bear market, and the price fell as low as about $160 in mid-2015. The next bull market began in September of 2015, with the price rallying leading up to the 2016 Bitcoin halving. At the time of the 2016 halving, BTC was trading at around $650.
The hashrate, on the other hand, briefly dipped after the 2012 Bitcoin halving and then started to climb extremely quickly in early 2013.
2016 Bitcoin halving
The Bitcoin price dipped shortly after the 2016 Bitcoin halving. However, the BTC price increased as 2017 approached. As we all know, Bitcoin went on a historic run in 2017, reaching its all-time high price of around $20,000. The price corrected heavily in 2018, falling as low as $3,200 in December. 2019 was a year of recovery for BTC, and it is currently trading at around $8,750.
After the 2016 Bitcoin halving, the hashrate trended sideways, but a substantial uptrend started to appear in late 2016. As the 2020 halving approaches, the Bitcoin hashrate is near its all-time highs.
Bitcoin halving - conclusion
With the 2020 Bitcoin halving approaching, the cryptocurrency market is fully focused on BTC. The performance of Bitcoin around this important event will likely also dictate the performance of the rest of the cryptocurrency market. Historically, Bitcoin prices performed extremely well after halvings, but we have to keep in mind that there have only been two halvings so far - this is also what makes speculating about the next halving so fascinating.