Is less actually more? Will halving be a boon to Bitcoin or an absolute curse that will lead to a spectacular crash?
Money needs to be printed to be used, it has to be brought into circulation. Whether it is paper based or virtual, someone has to decide how much of it is going to be brought to life and when.
Fiat currency and Bitcoin mining
Usually fiat currencies are printed by central banks to control inflation or as a part of a wider monetary policy of a nation-state.
In case of virtual currencies, since there is no national government involved or fixed borders, other means need to be deployed to manage money supply.
Bitcoin is supplied by ‘mining’ a process which involves doing complicated mathematical calculations using special software and hardware.
The creator of Bitcoin ensured that only a limited amount of Bitcoin could ever be brought into circulation and that number is pegged at 21 million.
He or She also ensured that mining becomes progressively difficult as time goes along and more Bitcoin are mined.
We know from Blockchain.info that as of April 2016, there are about 15 million plus Bitcoin in circulation.
Source: Blockchain.info
The halving and what it is all about
The Bitcoin system was so designed that from time to time mining value is halved.
The next time this is supposed to happen is on July 11, 2016. Halving will have a dramatic effect on miners as their income will drop significantly.
The difficulty level of mining Bitcoin will also ensure that smaller miners will no longer find it viable to mine the cryptocurrency leaving the mining space to large operators or pooled mining companies.
This trend has already been observed with the Chinese taking up mining on a large scale and mining more than half of the Bitcoin mining that happens today.
So what effect will halving have on Bitcoin? Will it lead to an increase in Bitcoin prices or is it time for a massive crash? We talked with a few industry experts.
The long and short of it
Experts are definitely split into two when it comes to Bitcoin price after halving and those that are bullish on halving have their own reasons.
However we tried to get both a short term and long term view of the halving situation.
Aleksandar Matanovic, CEO of ECD.rs, a Bitcoin exchange, says to Cointelegraph:
“Short term, I think price will go down. A lot of people are expecting the price to rise after the halving and those who want to take advantage of that will buy before the halving, hoping to sell at the higher price after the halving. It will push the price up prior to the halving.”
Matanovic thinks that according to the Efficient Market Hypothesis prices already reflect all information that is available to them and have factored in the halving.
He thinks that the current prices have taken the phenomenon into account and that is why prices of Bitcoin won’t rise immediately after halving contrary to what many speculators believe.
He is of the view that long term Bitcoin prices should rise.
Matanovic adds:
“We will have 75 new bitcoins each hour compared to 150 we have now. So, if the demand keeps rising at the similar rate it has been rising lately, the new supply rate won't be enough to keep the balance and it will push the price up.”
Price increase with sharp falls
David Duccini, Strength in Numbers Foundation, says to Cointelegraph:
“If the price doesn’t move to match costs, there could be a precipitous drop in hashing power, which should be offset by the drop in difficulty, but who knows.”
We also had a word with Fran Strajnar, Co-founder of BraveNewCoin.com who presented a detail long and short term analsysis of the halving.
Taking a short term view he explains:
“With the current positive market sentiment momentum and not long to go until halving, we will see a continued, steady, price-increase with sharp falls on the way.”
On a longer term he believes that most miners will hedge in different ways and stop liquidating coins as much as they can till the price reaches a level where they can achieve current margins.
He thinks they can wait up to 6 or greater months to start taking profits again at US$ 700- US$ 850 price range.
Strajnar concludes:
“This represents a two fold reduction in supply.
- Less coins being printed.
- Less coins being sold, as miners hedge and wait for price to go up. Therefore I strongly believe the supply & demand will see Bitcoin reach at least $800 by Dec 2016.”