In fact, over the past week bitcoin’s price has increased by 13.2%, while the price of ethereum has increased by only 1.5%. If nothing else, this indicates that buying demand is increasing as we draw closer to the Bitcoin halving event, which is due to take place next week, on May 12.
The question is: will these price increases continue after the Bitcoin halving takes place? Well, while it’s possible that we’ll see a dip immediately after the halving, all available evidence suggests that the bitcoin price will increase in the medium- to long-term. In other words, assuming that demand remains constant or increases, the reduction in supply will inevitably increase the price of BTC.
Bitcoin Halving = Less Bitcoin For Miners To Sell
First of all, it’s important to remember what the Bitcoin halving will do. Namely, it will reduce the block rewards paid out to miners by half. In other words, miners will have 50% less BTC to sell.
This is important, because while miners have had a reputation as HODLers, they’ve been increasingly selling their stock of bitcoin in recent weeks. According to data collected by ByteTree, miners actually began selling more BTC than they mined in late March.
ByteTree’s generation vs. first-spend chart has shown that in the past few weeks, miners have slowed down their selling of freshly minted bitcoin. However, even over the past week, they’ve still been selling almost as much BTC as they’ve mined.
Put simply, miners sell bitcoin. Rather than hoarding it, they inject it into the market. However, when the Bitcoin halving happens on May 12, they will have half as much to circulate. Supply will drop suddenly, so relative demand will increase. And in turn, so will price.
Immediately after the Bitcoin halving, most analysts are predicting that volatility will increase. Some expect that the bitcoin price could dip in the short term, based largely on previous halvings. For instance, when Bitcoin last halved, on July 9 2016, it fell by 16% by August 2, according to data from CoinMarketCap.
That something similar may happen immediately following May 12 is suggested by how investors have been accumulating and hoarding coins since at least last year. As shown by data from Glassnodes, the number of addresses holding at least 1 BTC has been growing in recent months. So too have the addresses holding over 1,000 BTC.
Possibly, such investors could be preparing to take advantage of the 50% cut in reward supply by ‘flooding’ the market with the BTC they’ve stocked.
However, they may simply end up staggering the sale of the bitcoin they’ve accumulated, selling at a steady pace in order to avoid hurting the price (and their profits). Either way, the example of 2016 suggests that, even after a short-term dip, the bitcoin price will begin rising steadily afterwards.
Indeed, all available data indicates that the bitcoin price will rise over the medium- to long-term. There is no sign that demand for BTC will drop after the halving, so by necessity the reduction in supply will increase price.
Not only will the halving reduce the amount of bitcoin miners have to sell by half, but it will also force the more inefficient miners offline. These are precisely the kinds of miners more likely to sell bitcoin and thereby drive down the price. As Blockware Solutions’ CEO Matt D’Souza explained during an appearance on The Stephen Livera Podcast:
“Capitulation is a very good thing. It’s removing the inefficient miners … Their rewards get allocated to the efficient miners … And those are the strong hands. We want bitcoin in their hands because they don’t have to sell as much bitcoin. Their margins are good, they don’t have to sell as much bitcoin, there’s less sell pressure on the network, and the bitcoin price could increase.”
Looking towards the end of the year, most analysts are predicting very good things for the bitcoin price. Cryptocurrency trading platform Crypto.com surveyed 10,000 traders earlier this year, finding that 75% of respondents are predicting an average price for bitcoin of $14,628 by the end of 2020.
Meanwhile, research published by Pantera Capital earlier in May concluded that it expects the bitcoin price to hit $115,000 by August 2021. This was based on the use of the stock-to-flow model, which predicts that the 2020 Bitcoin halving will have 40% of the impact of the 2016 halving, which kicked off a famous rally all the way to $19,000.
In fact, this prediction chimes with a forecast from crypto analyst PlanB, who also used the stock-to-flow model to predict a tenfold increase in bitcoin’s price in one or two years. Given that bitcoin is currently around $9,000, this could work out at $90,000 by May 2021.
Of course, none of this is certain, and it assumes that demand for bitcoin at least remains constant.
However, given that the halving is also providing Bitcoin with more publicity in the mainstream press, the halving could end up increasing overall demand. So with a reduced supply, it would be foolish to bet against it pumping the price in the longer term.