The Bitcoin halving: bulls vs bears

In mid-May 2020, the supply of Bitcoins issued as mining rewards will cut in half. The phenomenon is hardcoded into the Bitcoin protocol. It’s known as the “halving”, or the “halvening.” It happens every four years, and will continue to do so until the year 2140, when the last of the 21 million Bitcoins in existence will be mined into circulation.

Historically, the halving has caused the price of Bitcoin to boom. On November 28, 2012, the day of Bitcoin’s first halving, the block reward was cut from 50 BTC to 25 BTC. As the price was cut, Bitcoin’s price rose from $11 to $12. Next year, the price kept climbing: it hit $1000 in November 2013.

Four years later, in 2016, Bitcoin’s block reward halved from 25 BTC to 12.5 BTC. Bitcoin’s price had fallen since the 2012 spike, but in May, two months before the halving, its price rose by 65%, to $750. Bitcoin settled to $650 at the time of the halving, but broke through to $1000 in early 2017.

Will the value of Bitcoin soar following the 2020 halving? It’s not unfeasible, if past is prologue. But what say the experts?

The bull case: Bitcoin is a deflationary asset

Some of those we spoke to took a bullish stance; they told Decrypt that the halving event will cause the price of Bitcoin to surge, as it has done in the past.

“One of Bitcoin's main value propositions is the idea of digital scarcity,” said Mati Greenspan, CEO of crypto consulting company Quantum Economics. “In less than four months, Bitcoin's inflation will go from 3.68% to 1.8% a year. All things being equal, if there are less coins on the market the price should go up,” he said. 

And he thinks it’ll stay that way. “That there will only ever be 21 million in circulation ensures that Bitcoin remains a deflationary asset that is designed to rise in value over time,” he said. For Greenspan, the halving event is “not only a symbolic reminder of this concept but is a tangible milestone at which the token’s incoming supply is decreased.” 

Paolo Ardoino, CTO of crypto exchange Bitfinex, the sister company of the stablecoin giant Tether, agreed. “From a financial market point of view, we should see a decreased sell pressure on the markets due to a lower number of Bitcoins being available to miners,” he said. “This makes it more likely that we will see a medium-term increase in the price of Bitcoin.”

Erik Voorhes, CEO of Shapeshift, told Decrypt that the halving is a sign of a healthy market. “It demonstrates a fundamental difference between Bitcoin and fiat: predictability and transparency,” he said. Moreover, it “demonstrates that predictable math can substitute for the subjective whims of politicians and bankers.”

“With fiat, nobody knows how many dollars exist, or how many will be created next year, and as the halvening demonstrates, with Bitcoin, everybody knows exactly how many Bitcoins exist, how many will be created next year, and even what the inflation schedule will look like 20 years from now.” Whether that makes number go up, Voorhes didn’t say. 

The bear case: the halving is already priced in

Others disagree with the optimistic scenarios outlined above. Nic Carter, a partner at Castle Island Ventures, is one of those predicting a more bearish outlook. He told Decrypt he doesn’t believe in the “halving catalyst,” and said that cutting the mining rewards in half will hurt miners, disincentivizing them from powering the network. “It’s going to make marginal miners unprofitable,” he said. “Most miner revenue still derives from issuance, so if issuance cut in half, revenue is effectively cut in half,” he added. 

Carter also said the halving means that the market for ASICs (bespoke mining PCs) and other ancillary businesses—like mining pools and hosting companies—will be substantially reduced. “I don’t expect fees will compensate for the halved rewards, and it seems eminently unlikely to me that the price is going to spontaneously double to account for the reduced issuance,” he said.

“It defies sense,” he said. Instead, he thinks the halving is already “priced in”: “Information that is market-moving becomes priced in before the event occurs, if it is known,” he added. 

David Gerard, author of Attack of the 50 Foot Blockchain, is also pessimistic about the halving. “The halving has no significance,” he told Decrypt. “It's a narrative trying to give the impression that Bitcoin is going to the moon—when the price is still entirely explained by whales burning the margin traders, as it has all through 2019.” The halving’s main effect, Gerard argued, would be to make it less economic to be a Bitcoin miner. “That's good, because proof of work crypto mining is a crime against humanity,” he added. 

Joe Lallouz, CEO of New York-based blockchain company Bison Trails and founding member of the Libra Association, is on the fence. On the one hand, he said: ”History doesn’t dictate the future,” adding, “Just because it’s happened every other time doesn’t mean it will happen [again].”

“Bitcoin has halvened on a predictably set schedule and it’s baked into the protocol,” Lallouz added. “In perfect markets or rational market scenarios, you would imagine a world where the crypto economy has already somewhat adjusted to the fact that Bitcoin will halve this year.” 

Crypto’s only getting bigger—Bitcoin’s market cap in 2016 was around $8 billion, a figure that’s since increased to about $170 billion. “The more people are involved, the more likely that the crypto economy has accounted for the fact that Bitcoin is going to halve its rewards this year,” Lallouz said. 

However, Lallouz qualified his remarks, noting that, “people don’t act rationally and markets aren’t perfect,” he said. That’s particularly apposite given that this is the crypto market we’re talking about—where common sense goes out of the window. 

Lallouz conceded that there’s likely to be some sort of price shift like those seen historically in Bitcoin. “But with it being such a leading indicator for the crypto ecosystem,” he added, “we could see a market cap or price jump for the whole ecosystem.” 

History will be written by the victors.