Varying Perspectives Trail Post-Halving Expectation
As there hasn’t been any clarity on what the impending Bitcoin block reward halving might mean for the industry, some crypto and blockchain insiders have shared their expectations after the event slated for May 11.
The co-founder of Ontology public blockchain, Andy Ji, believes the 2020 Bitcoin halving will be different to the 2016 edition for some of the challenges that have cropped up in the past four years.
“Bitcoin and the crypto industry now face new challenges as current trends such as de-globalization and Covid-19 impact the world,” he said, adding that the coming months and years could see Satoshi Nakamoto’s economic system “have the opportunity to prove its resilience and strength in comparison with traditional Wall Street protocols.”
Most debates with regards to Bitcoin and the halving have centered around the top cryptocurrency’s price. A section of the space expects Bitcoin price to rise in line with the halving’s reduction of new coins’ supply. Ji sounds a note of caution with being overly optimistic in this direction citing that the news that the Bitcoin halving is happening is widely known this time and it’s less likely that it will drive price upwards as much as it did the last time. However, he noted that as central banks around the world begin to increase supply of fiat money, “the possibility of gradual growth towards a more bullish market becomes increasingly likely.”
Post this 2020 halvening miners will cease to be the biggest sellers of Bitcoin. It'll be the dawn of the crypto exchange as the leading seller.
The biggest sell pressure on Bitcoin will soon be from exchanges selling their BTC fees collected into fiat.
— Willy Woo (@woonomic) May 9, 2020
For Hypersheet co-founder, Willy Woo, miners will no longer be the biggest sellers of Bitcoin after the 2020 halving. Rather, crypto exchanges will be the leading sellers exchanging the transaction fees they have collected over time to fiat. He likens exchanges to tax agents on traders who can dump their “tax”, extracted in fees in Bitcoin, on the markets in exchange for fiat similar to how miners’ dump on the market is absorbed by new demands.
The upcoming halving is expected to reduce the revenue from mining by 50% immediately, bring down the gross margin by around 40% – considering there is some buffer from reduced energy cost, and force some miners to shut down a lot of their machines, says Jason Wu, CEO of DeFiner.org, a peer-to-peer network for digital savings, loans, and payments. This will support the Bitcoin price immediately after the halving due to less energy cost and the fact that miners won’t need to cash out BTC to pay for their energy cost, he added. But this will likely change after about two weeks from the halving after the mining difficulty would have been adjusted and profitability of miners would have gone up from -50% down back to around -30%.
“At this point, miners will be able to reopen old machines. This influx will keep increasing the mining difficulty, and therefore reduce the BTC rewards yet again” Wu said. “All of this will finally reach a balance and there will be some stability after a while. On top of all of this, as the old mining machines become obsolete, new machines will be more profitable and ramp-up to the market more quickly.”
He expects Bitcoin price to likely rise steadily afterwards due to the liquidity issue that will face the market if there is not enough Bitcoin on the market to meet the new buyers attracted from the price appreciation after the 50% reduction of newly-mined Bitcoin supply.
“If this happens, most likely the BTC price will keep going up and push up the mining difficulty to a higher level as well,” Wu said. “The mining rewards per block will keep reducing, and when it reaches just 25% of the original level, the price of BTC will go up at least four times, potentially reaching $40,000 easily. Therefore, the halving will help the BTC price trend upward to reach a new level in the foreseeable future.”
A financial crisis in the current fiat currency world could even see Bitcoin’s price go higher in the next 1-2 years thus attracting new capital and attention from the public into this industry.