Why Bitcoin in half in 2020 is different and could disappoint expectations of price increases like in 2012 and 2016

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In less than a month, the third Bitcoin block will halve, arguably the most anticipated event in crypto space to date, will take place. After halving the reward miners receive for checking transactions and maintaining the Bitcoin network will be cut in half.

In theory, the price of Bitcoin should go up after the rewards are shared, as this means that Bitcoin will become even rarer. Remember that these mining rewards are the way the new Bitcoin is created, and halving them means that new units of the largest cryptocurrency by market capitalization become more difficult to reach after the halving event. Bitcoin.

Halve: price or not

Predictions on how the market will react after halving vary according to key crypto analysts. Some, including cryptographic commentator PlanB, believe that the market has already reasonably assessed the effect of reduced rewards. Another group, including Bitcoin enthusiast Anthony Pompliano and Binance CEO Changpeng Zhao, insists that the halving has not yet been factored into the price of Bitcoin.

In February, Zhao announced that he thought the halving had not been taken into account: “The market is not efficient. Most people don’t get information quickly. It takes a long time for people to let the concepts penetrate and adapt, “he said.

The Bitcoin market has experienced two events in half in its short lifespan – the first on November 28, 2012 and the second on July 9, 2016. At the first opportunity, the rewards went from 50 BTC to 25 BTC per block, and the second saw a reduction to 12.5 BTC. The upcoming halving will see a further drop to 6.25 BTC per block.

The first halving event of 2012

Prior to the 2012 halving event, Bitcoin experienced a decent upward trend, dropping from around 135% from just over $ 5 per BTC at the start of the year to the price region of 12 $ in early November 2012. After halving, the trend continued, with a 90% jump in BTC to around $ 1,180 at the end of 2013.

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The period around the first halving (November 28, 2012). Chart by TradingView

The increase in the first months of after 2012 coincided with the financial crisis in Cyprus, when the local government intervened with a rescue plan for the banks. Some researchers have also found that the final surge between September and November 2013, when the BTC exceeded $ 1,000, was the result of price manipulation.

The second halving event of 2012

However, the price structure of the first division by half is noticeable in the months before and after the second division event. Bitcoin prices were essentially flat for the first three quarters of 2015, around the price region of $ 300 to $ 400.

However, the market recovered in the fourth quarter. BTC prices increased from $ 300 in October 2015 to more than $ 600 in July 2016. Just one year after halving, in July 2017, the BTC price soared to around $ 2,800 before peaking $ 20,000 in December 2017.

The strong increase by half after 2016 was explained by other determining factors. On the one hand, the bullish wave of 2017 corresponded to the ICO bubble, which emerged that year.

Estimates of amounts raised at OIC events in 2017 vary, but Statista data estimates the figure is closer to $ 6.4 billion. The importance of the ICO boom was such that it increased demand for BTC, which, along with Ethereum, was the cryptocurrency accepted by many ICOs.

In addition, 2017 was the year of the Bitcoin protocol update, dubbed SegWit – or Segregated Witness. The SegWit protocol upgrade has increased the processing power of the Bitcoin network transactions. Analysts said improving the network was also a contributing factor to the stellar year from which BTC benefited in 2017. Increased media attention was another contributing factor to the biggest crypto bubble in 2017 .

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The period around the second half (July 9, 2016). Chart by TradingView

The question mark before halving bitcoin in 2020

Given the circumstances surrounding the first two halving events, it’s hard to say for sure how the market will react to the coming halving of 2020.

As can be seen from the following table, unlike the first and second halving events, Bitcoin does not get strong and bullish before the actual block reward is reduced. According to Bitcoin’s countdown to halving, there are about three weeks left before halving, as of this writing. It is hard to believe that things will change in this short period.

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BTC chart halved before 2020. Chart by TradingView

In addition, the Bitcoin market is now more mature. Since the last halving, a multitude of trading products, including Bitcoin derivatives exchanges, have appeared on the market. In fact, the derivatives market is now at least ten times larger than the cash market, according to the Bloomberg report.

This has brought the crypto market a certain level of price discovery sophistication known in the traditional market. Traders can now make bets for or against BTC (long and short). While opening long positions was the most common way to profit from crypto in 2016. More and more institutional players are launching crypto products, more than ever before.

To take away

Although the raw price data indicates that Bitcoin increases after halving events, there are caveats. The first problem here is that the data divided by two exists only twice, which is too limited to conclude. Other factors have also been shown to be more important driving forces.

In addition, the market development discussed above means that the upcoming halving can lead to unexpected trends for the first time. The COVID-19 epidemic, which is causing a global economic slowdown, is adding to the uncertainty.

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