A visual representation of the digital cryptocurrency bitcoin.
Yu-Chun, And Christopher Wong | S3studio | Getty Images
Bitcoin facing a key technical event for Monday, known as “halving.” Due to take place later in the day, industry insiders are debating the effect it might have on the cryptocurrency market.
So, what is the reduction half? You can think of it as an update to the underlying network, and that records of all bitcoin transactions. There are the so-called “miners” on the network, specialized computer rigs competing to solve complex math problems to validate bitcoin transactions. The one who wins the race and is rewarded in bitcoin.
On Monday, the amount of bitcoins rewarded for these minors are set to be cut in two. It is something that takes place approximately every four years, in order to keep a paragraph on inflation. The current reward stands at 12.5 bitcoins, or BTC, so, it will be reduced to 6.25 BTC.
Unlike fiat currencies like the dollar, there is no central bank that manages the supply of bitcoin or its rate of inflation. Instead, this has been maintained thanks to a rule written into the bitcoin code, by the pseudonymous inventor, Satoshi Nakamoto.
The total number of bitcoins that will ever be mined is capped at 21 million. The loyalty to the bitcoin miners to maintain the reduction by half until they reach zero. Bitcoin bulls say that this scarcity is part of what underlies the cryptocurrency of the value, and make it a potential “hedge” against the currencies, which are vulnerable to devaluation in a time of economic crisis.
“With its finish and the procurement planning and a decentralized architecture, BAC, in particular, provides the certainty necessary in these moments, and it will probably become a new safe-haven” asset class” cryptocurrency loans to start-up and Nexo has written in a note in the last week.
How would prices respond?
“Investors are likely to be on the lookout for the reaction, or to bitcoin and other cryptocurrency prices, to the reduction of half of the event later in the day. Some believe that the event was most of the time prices in the markets already, but there are others who think that it could boost the price.
The last two halvings, led to the opposite of the short-term price movements, according to the British bitcoin exchange CoinCorner. Bitcoin has risen from 7% a month from the first half of the event in 2012, but has slipped to 10% a month after the second in 2016. However, the price has increased 944%, six months after the 2012 halving, and 38% for the same period in 2016.
“While many anticipate the upward movements-post-halving, we believe that the provision of shock that comes immediately after the reduction of half of the event should have a limited impact on prices in the short term,” Lennard Neo, director of research, Singapore-based bitcoin index fund, a provider of Battery, said in a note Thursday. “As the block reward for the miners decrease, there will be a time lag as well as minor (on the supply side) to reposition to the market equilibrium.”
“We anticipate that it could take 6 to 9 months before this equilibrium is found, and the Bitcoin realizes reduce half induced by the appreciation of the price. That said, the more far away from the hustle and bustle in the broader economy could accelerate, its upward trajectory.”
But there are also fears that, by 2020, to reduce by half will also have an impact on the minor of income, as they will need more competition, mining is preparing to earn the bitcoin rewards.
“The miners are currently a need to produce more work, to get the same reward,” said Ed English, Hindi, CIO at Cayman Islands-based cryptocurrency hedge fund and Tyr Capital. After the reduction of half of their expected return will be cut in half.”
Bitcoin has increased by over 20% since the beginning of the year. The virtual currency known for its volatility, suffered from the sharp fall over the weekend. He briefly touched $10,000 on Friday, but declined to about us $8,800 as of Monday morning.