Bitcoin Halving 2020: How Will It Affect Token Value?

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With Bitcoin’s third halving event scheduled to take place later this month (May 11, 2020), the time has come to start making predictions as to how the network’s BTC token might be affected as a result.

A halving event, often referred to as a ‘halvening’, is when the amount of Bitcoin released per-block by mining is divided by half, as well as rewards distributed to network miners. This is done to help control the circulating token supply and mitigate inflation and only applies to blockchains which use a Proof-Of-Work consensus mechanism.

As such, it might seem reasonable to assume that a decrease in supply would result in a higher valuation per-token, however there are other factors which affect token value which must be considered to be able to be able to accurately predict future trends

In order to help inform predictions regarding just how the forthcoming Bitcoin halving will affect price performance, we must examine recent market trends: both holistically and for Bitcoin specifically. As well as how previous halving events have correlated with token values.

Owing to the ongoing, worldwide novel Coronavirus (COVID19) pandemic: it must be noted that, unlike during the prior two Bitcoin halvings, we are currently living in unprecedented economic and social times. This is likely to have some impact on investor confidence, plus the investment culture and trends compared to the earlier halvings.

Bitcoin’s Performance in 2020

At the beginning of the year, cryptocurrencies exhibited a steadily positive appreciation in values and market cap. Around the beginning of March however, all cryptocurrencies suffered a huge dip in value - which coincided with the growing spread of the novel Coronavirus (COVID19) that has since reached a worldwide pandemic scale.

For example: Bitcoin bottomed out at $81,743,478,762 market cap and $4,474.74 per-token value on March 13, 2020. This was a drop of 50.86% for Bitcoin’s market cap compared to the year’s high on March 7th, 2020 (the drop also comprised 61% of the total market cap volume lost by all cryptocurrencies together over this period).

The cryptocurrency market has collectively recovered the majority of its losses steadily between March 16th and now - albeit with a few caveats more recently (except for Bitcoin). Bitcoin is currently outperforming the majority of other top-market cap tokens, faring better than its peers (which have, conversely, been suffering) at weathering negative volatility versus fiat.

Whether or not this will continue after the halving, however, is yet to be seen.

The First Two Bitcoin Halvings

There is little data on the 2012 halving, as the market cap was relatively low, but we can learn a lot more from the second halving (July 9, 2016). Especially as in 2016 the state of cryptocurrency more closely resembled its current state.

As you can see above, Bitcoin’s value remained fairly static through the first four and a half months of 2016 - rising sharply in mid-june before experiencing some sideways volatility. After the halving event, this volatility remained for a few weeks before dropping steeply between July 31 and August 3, 2016. 

After this point the value began to grow exponentially to the end of the year.

Litecoin Halving 2019

Litecoin was one of the more recent, significant examples of a cryptocurrency network ‘halving’ - which occurred back in August 2019. The block reward for miners was reduced from 25 LTC to 12.5 LTC and this occurred on block 168,000 on August 5, 2019.

The first half of 2019 saw sustained success for Litecoin up until its peak: on June 23, 2019. From here, its value dropped significantly, with it’s curve being almost identically mirrored before and after its peak.

The value decrease continued through the halving event, and to the end of the year, and it only began to recover again in January 2020, along with the rest of the market.

What Can We Learn From Previous Halvings?

From all examples we have looked at, it becomes apparent that the value of a token is predominantly higher prior to the halving event than immediately after. After the event, the value most often drops in value - with a likelihood of future rebound (the time of which is pending on other influencing factors).

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