As the Bitcoin halving clock ticks closer to the May 10 D-day, we take a look at what this monumental event will mean for the largest crytocurrency by market cap amid the Covid-19 pandemic.

First, a few definitions:

What is the Bitcoin Halving (or Halvening)?

New bitcoins are issued by the Bitcoin network every 10 minutes. For the first four years of Bitcoin’s existence, the amount of new bitcoins issued every 10 minutes was 50.

Every four years, this number is cut in half. The day the amount halves is called a “halving” or “halvening”.

In 2012, the amount of new bitcoins issued every 10 minutes dropped from 50 bitcoins to 25. In 2016, it dropped from 25 to 12.5. Now, in the 2020 halving, it will drop from 12.5 to 6.25.

The halving happens every 210,000 blocks. The 2020 halving will happen on block 630,000. The 2024 halving will happen at block 840,000.

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What is the Significance of the Bitcoin Halving Event?

The halving decreases the amount of new bitcoins generated per block. This means the supply of new bitcoins is lower.

In normal markets, lower supply with steady demand usually leads to higher prices. Since the halving reduces the supply of new bitcoins, and demand usually remains steady, the halving has usually preceded some of Bitcoin’s largest runs.

Here is a look at previous halvings and their effects on Bitcoin prices 150 days later:

2012 Halving

The November 28th block halving was the first halving:

• New BTC Per Block Before: 50 BTC per block
• New BTC Per Block After: 25 BTC per block
• Price on Halving Day: $12.35
• Price 150 Days Later: $127.00

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2016 Halving

The second halving occurred on July 9th, 2016:

• New BTC Per Block Before: 25 BTC per block
• New BTC Per Block After: 12.5 BTC per block
• Price on Halving Day: $650.63
• Price 150 Days Later: $758.81

Each halving lowers Bitcoin’s inflation rate. As shown in the image below, note how the price jumps significantly after each halving:

Bitcoin was designed as a deflationary currency. Like gold, the premise is that over time, the issuance of bitcoins will decrease and thus become scarcer over time. As bitcoins become scarcer and if demand for them increases over time, Bitcoin can be used as a hedge against inflation as the price, guided by price equilibrium is bound to increase.

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