Special Halving 2020

2020년 4월 29일

Halving is the pre-programmed halving of the reward for miners who extract the cryptocurrency by confirming the various transactions. This occurs approximately every four years (210,000 blocks).
We have often heard of Bitcoin as digital gold, but why? Because just like gold, which is found in nature in a limited way, Bitcoin also has a limited offer of 21 million units, and precisely for this reason terms like "miners" and "extraction" are used to define who adds blocks and confirms transactions.
Today we are far from exhaustion of the maximum offer, in fact it is estimated that the last Halving will take place in 2140, when the 21,000,000th BTC will be extracted. After that event miners will stop receiving rewards for generating new blocks, but will still continue to earn with the commissions that users will pay to confirm transactions.

When is the next Halving scheduled?
Since the birth of Bitcoin, there have already been two Halving events that have led to a halving of the miners' reward. In fact, when Bitcoin was launched in 2009, miners got a reward of 50 BTC per block; after the 2012 Halving it was reduced to 25 BTC , and in 2016 to 12.5 BTC .
Based on current performance, the next Bitcoin Halving is scheduled for May 12, 2020, bringing the reward to BTC 6.25 . This will continue until the last Halving, which will reduce the reward to less than 0.1 BTC .

The miners' economy
The rewards of mining activity come from two sources, the reward for generating new blocks and the transaction costs.

Rewards for new blocks
As explained above, miners are rewarded with a fixed amount of Bitcoin for each block processed and added to the Blockchain. About every four years or so this amount is halved, but this does not necessarily mean that the reward is halved. In fact, if the price in fiat currency goes up, the reward will also go up despite the Halving; if the price goes down, the reward will go down more than 50%.
Until now, as a result of this event, there has always been an appreciation of the cryptovauta: in February 2020 the value of the reward for new blocks generated was worth 10 times that distributed before the last Halving.


Reward on transactions
Each transaction included in a block contains transaction costs. On average, the transaction fee is 0.01% of the transaction value in USD, but this value rose to 0.06% during the 2017 bull run. Currently, transaction costs are not an essential income for miners, however, we believe that the importance of costs will increase as the reward obtained for the resolution of blocks decreases.
In addition, the size of the commission can be set at the user's discretion, those who need a very fast execution can increase it so that miners process it in less time.

The cost of the infrastructure
Getting the reward for solving a block is a bit like a lottery and the odds of winning can be affected by the speed of calculation you have. In fact, if you have more computing power than your competitors you will be more likely to solve the block and get the reward. Also, the more efficient your machines are, the lower the production costs will be for the same draw.
As blocks are added to the Blockchain (every 2016 blocks, or about every two weeks) the resolution difficulty changes. The difficulty tends to increase, so miners need to upgrade their hardware to remain competitive.
nially it was possible to mine with the CPU of a simple computer, then switched to GPUs that offered a higher hash rate, and then switched to ASICs (powerful processors with an average cost of about 2,000 USD) that evolved over time. Usually, in anticipation of Halving, large mining companies start to get rid of old hardware to replace it with newer ones. This year, due to the COVID-19, delays in the delivery of the newest miners are expected, increasing the risk of losses in mining companies in the short term.

The impact of Halving on price
And here we are at the crux of the matter, which is what the impact of this event will be on the price of Bitcoin.
Everyone knows that in the first two Halvings in Bitcoin history there was a strong bull run that led to exponential price growth - and many believe that this will happen again during the third one, between this year and next year.
In this article, we look at the history and key factors that determined the two previous bull runs and compare them to this year's bull runs.

Price history
In the first Halving, which took place in 2012, the price of Bitcoin increased by 200x. This bull run started six months before the event and continued for another 12 months, before dropping 84% over the next 14 months.
Similarly, in the second Halving of 2016, we saw the price rise by 4,000% and then plummeted from its peak in December 2017, as we all remember, burning 84% over the next 12 months. On this occasion the bull run started a bit late, two months before the event.
At the writing of this article we are a fortnight before the third Halving and we don't cost any bull run, except for a rebound in the last two months following the major crash at the end of February.

Volume history
During the first Halving the average daily trading volume rose by 50% in the two months prior to the event, and continued to rise until May of the following year.
In the second, they rose by 65% in the month before the event and 150% during Halving, only to collapse sharply afterwards.
This year there was an increase from January, only to collapse with the arrival of the Covid-19 crisis.

Macroeconomic factors
During the first Halving, in 2012, the US S&P500 stock index rose by about 35%, while the price of gold fell by 20%.
In the second, in 2016, S&P500 still had an increase of 30%, and the price of gold remained stable.
It is not complicated to understand that today the times are different because of the global recession catalyzed by the Coronavirus. S&P500 suffered a collapse with a maximum extension of -31.32% YTD, and the price of gold increased by 22.26%.
At this time of strong indecision investors will have to decide whether or not to invest, whether the time is right or not, and on which asset classes. The macroeconomic environment plays a key role and this year is not the rosiest. On the contrary, we are in recession and investors tend to liquidate and move capital into safe assets.
When building a portfolio, an investment in cryptocurrency means reducing the size of another asset, so investors are forced to assess each factor and choose the most attractive asset in terms of performance and risk.
As you can see from the volumes, the investment in Bitcoin has grown in recent years, demonstrating a greater interest from investors, who dedicate a percentage of their portfolio to cryptocurrency.

Market Theories
The first theory supporting a new bull run is based on supply: remaining at a constant level of demand, a halving of supply will inevitably lead to a price increase. But looking at the current numbers, the impact should not be as significant as the proponents of this theory claim. In fact, after Halving there should be a reduction of about 900 BTC per day, just over 7 million at current price. We are talking about less than 1% of the average daily trading volume of the past three months.
The second theory is that of stock-to-flow, i.e. the current supply divided by the quantity produced in a year. This ratio calculates the number of years it would take, at today's production rate, to equal the current extracted stock. This ratio is used for all raw materials, including gold, which is why Bitcoin is called digital gold by many. This is why many people support the store of value theory because, as mentioned above, Bitcoin, together with gold, is among the goods with a limited supply.
Nowadays BTC's S2F is about 27 years old, and is the highest of any precious metal except gold which is over 60. This value is very important, because it indicates the susceptibility of the price according to its production (the higher the number the less vulnerable the price will be).
A contrasting theory to that of S2F is the EMH, the Efficient Markets Hypothesis, based on the idea that the market tracks information efficiently and therefore you have a quick reflection of the price news.
Application of EMH on S2F theory: if we know that prices will go up according to this model and we buy before it does, this behaviour should push prices up and the increase should be reflected in today's price. Why is this not happening?
One argument in defence of S2F is that the model is not yet known by most investors, and efficient markets need a knowledge of the fundamentals that are missing in Bitcoin.

Conclusions
We believe that over the last four years Bitcoin has grown considerably and has matured a lot financially. Regulated derivatives have emerged that can block future prices, and consequently change Halving's behavior.
Despite the belief of some that the stock-to-flow model will remain and Bitcoin will be at $50,000-$100,000 shortly after mid-May, we believe that the price could rise just under 50% by this year to the dominant resistance levels.

We will continue to analyze the charts and the macroeconomic situation day by day, using the movements to generate capital gains.

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