On 20 April, Bitcoin completed its most recent halving. This involved reducing the rewards for miners to 3,125 BTC and created a novel landscape for miners and investors, who now have to deal with a new situation.
What is Halving?
A halving, in the Bitcoin environment, is held every 4 years or so. The operation consists of the dime of the remuneration paid to miners who mine new cryptocurrency. Each time a block is added to the blockchain, those who mined and verified it receive a reward, usually in the same currency. This is a kind of self-control of the system that aims, in this way, to reduce the frequency of mining.
The maximum threshold of minable Bitcoins is 21 million units. No more will ever circulate and this threshold is estimated to be reached in the year 2140. Satoshi Nakamoto, the mysterious creator of Bitcoin, set this limit to avoid the devaluation of BTC due to the arbitrary issuance of new tokens.
Fight for Survival
The reduction in rewards puts miners before a choice. Is it still worthwhile to engage in mining or is it better to abandon the operation? The computing power required to mine currency is substantial and weaker miners may decide to quit, and treasure the BTC they already have, or sell.
Apparently, the former would be the preferred route. Indeed, we are at a time when sales are really at rock bottom. Probably, many feel it is better to keep their coins in the drawer while they decide whether to stay in business or get out of mining. The fight for the survival of these insiders could deeply affect the Bitcoin market.
Halving is a Critical Moment
In terms of investing, the phase immediately following halving, i.e. the one we are in now, is always critical. On the one hand, it marks a strategic time to invest, while on the other hand it represents an ideal period for the drawdowner who wants to keep his or her assets safe. When it comes to selling, however, it is definitely not the best time window. The reason why is explained to us by Vetle Lunde, senior analyst for K33 Research:
"In the period immediately following halving, Bitcoin's performance tends to be sluggish. However, when looking at broader time windows, halving has always proven to be a very solid time to enter the market. Indeed, statistics tell us that the best period for Bitcoin's price is between 150 and 400 days after halving. During that interval the lower selling pressure exerted by the action of the miners has a positive impact on BTC."
The concept of sluggishness expressed by Lunde is probably due to the frenetic activity that marked the day of Saturday 20 April. During those 24 hours, in fact, so many transactions were recorded that the revenues derived from mining reached over 100 million dollars. The figure marks a new, historic record for BTC.
Halving Day: A Memorable Day
During Halving Day, miners earned a total of $107.7 million in rewards and transaction fees. The latter were raised for the occasion. There was awareness that BTC users would willingly spend higher fees to register transactions on block number 840,000 and become part of Bitcoin's history.
Although it may appear absurd from the outside, numerous investors wish to register their transactions on specific blocks, such as those triggering a halving. In order to do so, they are willing to pay even the 37.7 BTC in commissions (about $2.4 million) needed to grab a portion of the limited space available on the 840,000 block. This recorded 3050 transactions. Each individual transaction, therefore, cost around $800.
Following the halving hype, fees immediately dropped, moving far away from the average of $128 each as early as Sunday 21 April. By Monday 22, fees for a single transaction, at average priority, stood at between $8 and $10.
As anticipated, selling now is not particularly satisfying. This situation is well understood by those who mine and, for this reason,sales are falling sharply. It is estimated that little will change in the short to medium term.
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