Bitcoin’s “halvening” is upon us

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FT Alphaville | Jemima Kelly | May 11, 2020

bitcoin halvening  - Bitcoin’s “halvening” is upon usToday’s the day that bitcoiners the world over have been waiting for. It’s the day – which only comes around every four years – that the supply of new bitcoins is cut in half. It’s the halvening! (OK yes, some bitcoiners just call it “the halving”, but we prefer the former because we feel it’s a nice illustration of the way much of Cryptoland doesn’t make a lot of sense.)

This halvening, like all other such halvenings, was actually programmed into the bitcoin protocol when it was invented over a decade ago, as a way of giving the cryptocurrency some scarcity. It was quite a nifty idea to give something that only exists as a string of 1s and 0s scarcity; other decentralised digital currencies before bitcoin suffered from the lack of this.

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(The problem, however, is that it turns out that there is no scarcity in the number of copycat cryptocurrencies, which undermines the idea of scarcity in bitcoin.)

Some time in the first half of the 22nd century, bitcoin’s supply will reach 21 million (it is currently just over 18 million). Until then, its supply will keep increasing, but the rate at which it does so will halve every four years. And this evening, at around 20.11 GMT, the number of new bitcoins being added to the system roughly every ten minutes will fall to 6.25, from the current rate of 12.5.

The reason this is so exciting to bitcoin bros (and gals, though there are far fewer of those) is that this event is seen as a “surefire way” for number to go up (ie, for the price to increase). That’s because, according to the logic, if demand remains the same, the “age-old phenomenon of supply and demand” will kick in.

As we’ve pointed out before, however, the supply is still actually increasing, just at a slower rate. The halvening, therefore, can be thought of as a kind of “tapering”, but not a reduction in supply. Tomorrow, there will still be more bitcoins in circulation than today. So we see no reason that the halvening should boost bitcoin’s price.

One bold bitcoin bro analyst at Germany’s state-owned Bayern LB bank even predicted last year that, based on bitcoin’s “stock-to-flow ratio”, the halvening would boost bitcoin to $90,000. John McAfee, meanwhile, is due to consume one of his bodily extremities if the price doesn’t hit a cool $1m by the end of the year. Yum.

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The price at pixel, however, is firmly stuck just below $8,500, according to crypto site Coindesk – around the levels it’s been at since the start of May (it did recover in April after crashing to below $4,000 during the heavy March coronavirus-led sell-off across markets).

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