Bitcoin has captured the global market since the day it was made available for investors and traders. So much so, that many newcomers often equate BTC with cryptocurrency. Though it is not an entirely incorrect assumption, given Bitcoin alone is occupying a market cap of $1 trillion from the total of $600 billion (as of 15 April’21) of the cryptocurrency market cap!
Although an array of all-time highs that the Bitcoin market has shown us since 2020, one thing remains unchanged, that is, the total availability of this particular cryptocurrency. There will only ever be 21 million Bitcoins available in the world. A known reality that has also played a significant part in 2020, when the Indian crypto market experienced a sudden rise in Bitcoin investments!
Reasons for the sudden rise in Bitcoin investment:
The Halving mechanism is among the most valuable and intriguing part of Bitcoin investment. The halving mechanism was implemented to make sure there remains only a finite amount of Bitcoin. The reason for halving Bitcoin lies in the laws of supply and demand. If the coins get created faster than required, there will be no end to the number of Bitcoins that can be created. Thus, Bitcoin halving takes place every 210,000th block (~4 years) to break down the payment of the miners, who are paid in Bitcoins for adding the blocks containing transactions data in the blockchain.
Read more on Bitcoin Halving.
Reasons behind Bitcoin Halving
Although Satoshi Nakamoto never fully explained his reasoning for capping the supply of Bitcoins at twenty-one million units, some speculate that it’s merely a product of starting with a block subsidy of 50 BTC, which is halved every 210,000 blocks.
In contrast to fiat money, which loses purchasing power over time as new units enter into circulation, having a finite supply means that Bitcoin is not prone to debasement in the long run.
Had the halving mechanism not been created by Satoshi, all of Bitcoin would be mined by 2016. The halving mechanism provides an incentive to mine for the next hundred years.
Is Bitcoin Halving Good or Bad?
The halving mechanism in Bitcoin takes place to reward the crypto miners and to keep the circulation of 21 million Bitcoin intact! Satoshi Nakamoto, the anonymous founder of Bitcoin, had made sure the halving takes place once every 210,000 blocks are mined. This was a very far-sighted and clever move, given the demand Bitcoin has garnered around the globe.
If we have to incite a bad or a good side of it, Bitcoin halving is bad for the crypto miners, as they get paid less every fourth year when the halving happens. Other than that, it is all well managed for every Bitcoin investors! We get to have more Bitcoins for us to invest.
Does Bitcoin halving have any effect on its price?
The price of Bitcoin has seen a steady rise since it was introduced! From INR 6 in 2010 1 BTC is now valued at INR 43.8 lakhs (as of 22 April’21). With the halving taking place since 2009, it has been seen, that the anticipation of the halving happening results in the rise of Bitcoin price. Often several months before the halving event.
How does Bitcoin Halving affect the coin miners?
Miners make a list of all the transactions that have been accumulated since the last block was created. The coin miners then get into a race against one another to perform yet another hundreds and even trillions of SHA-256 hash computations every second to look for a block that produces a lesser hash than the dogmatic value.
The winner among the various coin miners is then awarded the block rewards (in Bitcoins) along with any transaction fees that might have been included within the individual transactions. Thus, the halving mechanism taking place also means a drop in the miner’s income, almost by half of what it used to be, overnight.
The sudden drop in the miner’s revenue means a sudden decline in the profits incurred by the miners. This in turn results in the miners switching to less expensive equipment for mining, i.e., a lot less energy consumption. We can even expect coin miners to temporarily hold their investments, the next few months, for new mining hardware.
Should I buy Bitcoin before or after the Halving?
Bitcoin halving has no real effect on the Bitcoins as such. Investors and traders get access to the very same Bitcoins through the exchanges and apps that they use. So, if you already own Bitcoins, they are all safe and secure in their wallets.
The price predictions by various investors of Bitcoin, before and after these halving events, had been pretty bold.
#bitcoin could hit $115,212 in Aug 2021 based on the change in the stock-to-flow ratio across each halving.
— Dan Morehead (@dan_pantera) May 5, 2020
But there is no definite saying regarding the matter. With CoinDCX’s assistance whenever you need it, you can buy your Bitcoin in just three simple steps. Anytime. Anywhere.
How does Bitcoin price affect altcoin prices?
In the previous bull runs, it has been witnessed that Bitcoin leads the rally and altcoins join the wave. Ethereum usually starts trending upward shortly after Bitcoin upswing and altcoins follow suit thereafter. This pattern has been observed historically and will likely continue. Altcoins usually pull back in the short run at the time of a Bitcoin bull run. It is only after the Bitcoin price has stabilized, investors move to altcoin and the altcoin season begins.
Bitcoin’s Correlation With Altcoins in the short-term during BTC rally
As Bitcoin emerged stronger post the 2020 massive sell-off in September, altcoins lagged leading to a lower correlation between Bitcoin and altcoins and dipped lower in October when Bitcoin rallied. This indicates capital moving from altcoins to Bitcoin during that period.
Often what is witnessed in cryptocurrency markets is that people invest based on herd mentality rather than focussing on fundamentals. When the price of Bitcoin is rising for a prolonged period, say 20% to 30%, investors tend to go long and overestimate its returns. Since the cryptocurrency market is very volatile and there are huge price movements at any given time, investors rush to take advantage of the Bitcoin price surge as they fear they may miss out on the opportunity.
To take advantage of this Bitcoin price movement, traders start moving their capital from altcoin to Bitcoin in the short-term, to gain quick returns. Thus, in the short-term, the capital is more concentrated towards Bitcoin, causing altcoins underperforming and short-term mispricing, But, in the long term, as the Bitcoin price stabilises, slowly altcoin season begins as the other coins start picking up especially with Ethereum price rising, consequently moving capital towards altcoins in the long-run.
Think of it similar to how the traditional currency market works. As the US dollar gains momentum, investors rush to make quick profits, converting local currencies to the US Dollar, causing other currencies to move in the opposite direction in the short-term, until the market stabilizes and then the other currencies pick up.
Ethereum leads the altcoin rally
Ethereum price plays an important role in the altcoin season as it is the second-largest and the most trusted cryptocurrency after Bitcoin. The majority of the decentralized finance (DeFi) industry is based on Ethereum and the rising demand for DeFi protocol has played an important role in increasing the trading volumes of altcoins. Initially, as the BTC rallied, the correlation between BTC-ETH dipped as we can see in the graph between November and March, and once BTC stabilised, Ethereum became more strongly correlated to Bitcoin. During the same time, the altcoins also picked up and the prices of altcoins surged.
Bitcoin’s Correlation With Altcoins in the long-term once BTC stabilises
As we can see in the chart, the majority of the coins move closer together as all the ones in red indicate a high correlation. While in general, any altcoin may have its swing, the overall altcoin market moves in tandem with Bitcoin. Bitcoin leads the market and rightly so given it dominates 55% of the crypto market, while altcoins follow in the long-term.
Bitcoin Price Predictions: What will be the Bitcoin price in 2030?
The price of Bitcoin has been on an upward trajectory ever since its inception in 2009. On October 31, 2008, the Bitcoin whitepaper was published by Satoshi Nakamoto describing in detail how a peer-to-peer, online currency could be implemented. In January, two months later, the first-ever block on the Bitcoin network which is known as the genesis block was launched giving rise to the world’s first cryptocurrency. Since then Bitcoin price has been on an upward trajectory with its highs and lows in the past 12 years.
But in 2021 alone, Bitcoin price has surged due to high institutional investor’s demand and big companies entering the space and investing in Bitcoin. Tesla, PayPal, J.P. Morgan are a few of the names that have led to Bitcoin price skyrocketing. Bitcoin has increased by 667% in the past year and the chart below describes the timeline and the events that led to the Bitcoin rally in 2021.
Many industry pioneers have provided Bitcoin price prediction in the past. While some predicted the price correctly, some got the prediction wrong. The chart below lists down some of the names:
|Mike Novogratz –||$10,000||2018||Correct|
|Tom Lee –||$91,000||2020||Wrong|
Below are some of the future prediction made by Bitcoin evangelists in the industry:
|John Pfeffer||$700,000||No date|
|Mark Yusko||$400,000||No date|
|Roger Ver||$250,000||No date|
|Andy Edstrom||$8 trillion market cap||2030|
|Mike Novogratz||$7.5 trillion market cap||2029|
While some may have predicted the price of Bitcoin correctly, some failed to provide the right prediction. Due to its volatile nature, it is difficult to predict where the markets could be heading a few years down the line. But for now, we will observe and keep track of whether the predictions as per the above-listed Bitcoin experts are right or not!