Bitcoin miners worldwide raked in an astonishing $5 billion in revenue in 2019. With the upcoming Bitcoin Halving event in May, the block reward will be cut from 12.5 to 6.25, so how might this affect miners and the Bitcoin network?
What is Bitcoin Halving?
There are currently around 18 million bitcoins in circulation with a further 3 million left to mine, but this does not mean that Bitcoin will reach its limit anytime soon.
The reason for this is Bitcoin’s protocol has been coded to perform a halving event at every 210,000 blocks, which is roughly every four years. The protocol slashes the block rewards in half, so each time a bitcoin halving event occurs, miners receive 50% fewer bitcoins for verifying transactions.
When Bitcoin first launched miners received block rewards of 50 BTC. In 2012, this was reduced to 25 BTC and again in 2016 rewards reduced a further 50% to the current 12.5 BTC per block. And as already mentioned, the upcoming May halving will result in the block reward being halved again.
How Will The Halving Affect Miners?
It’s impossible to predict the future, but this reduction is expected to have serious short-term consequences for the mining community, with some fearing a shakeout of the small-time miners.
Steve Tsou, CEO of RRMine states:
“The halving in 2020 will have great impacts on Bitcoin miners: 1) Miners with low mining efficiency will be forced to pause and re-evaluate their business operations. 2) Digital mining is becoming the racetrack for giant international companies because they have more advanced machines and cheaper sources of electricity.”
Plouton Minings founder and CEO Ramak J Sedigh shared Tsou’s concerns over the impact the halving will have on small operators.
“The upcoming halving will force the small operators and those running S9s out of the market, except in the unlikely scenario that BTC reaches a new all-time high by the end of May."
The May 2020 halving looks set to shakeout a large number of small to medium sized mining operations with the main benefactors being large scale centralized mining operations with access to the latest up to date hardware and cheap electricity.
Related Reading: Bitcoin Miners Need to Prepare for The Bitcoin Halvening
How Will The Halving Affect the Future Bitcoin Price?
History doesn’t always repeat itself, but it does usually reflect on past performances, so it's important to examine the effects of the previous two halving's on Bitcoin's price.
The first halving occurred on November 28th 2012 when bitcoin was priced at $11. A year later Bitcoin had grown an incredible x100 to $1,100.
The second halving occurred in July 2016 with Bitcoin valued at $650. Just over a year later, the Bitcoin price had x33, reaching $20,000 at the peak of the 2017 bull run.
If May's halving was to follow previous trends then the Bitcoin price could possibly x10 within the 12-18 months. At current prices this could see a bitcoin valued at a cool $100k.
Kraken CEO Jesse Powell is as bullish as anyone on the future price of Bitcoin. He states:
“When I hear people talking about a Bitcoin “correction” I’m thinking $100k, maybe $1m. That’s what’s correct. “
Anthony “Pomp” Pompliano, co-founder of Morgan Creek Digital Assets is another who is extremely bullish on the Bitcoin price. He has stated publicly a few times that he believes Bitcoin will reach $100k by 2021.
“One of the largest drivers of that demand or increase in scarcity is the halving in May 2020,” says Pomp. “Which i think is going to be a big moment.”
Pomp is right. The Bitcoin halving is going to be a big moment. After the event it will be the first time the inflation is lower than that of all Fiat currencies.
May’s upcoming halving looks set to have large scale short-term and long-term implications for the Bitcoin ecosystem. In the short-term many smaller mining operations will struggle to turn and profit, which might unfortunately give way to large-scale mining operations.
However, in the long-term the future increase in the Bitcoin price should ensure Bitcoin mining remains profitable. So, although a short term hit is likely, those who aren’t over-leveraged and see it as a long term game should be fine. And if and when Jesse Powell is right, we should all be alright.
Author: Ronan Mullaney