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A Halving Counterpoint: Bitcoin’s Rally May Be Tricky This Time
- Miners Take the Toll
- COVID-19 Creates Higher Levels of Uncertainty
On May 12th we witnessed the 3rd Bitcoin halving. This renowned crypto event is where the rate at which new Bitcoins are mined is halved. As we had mentioned in previous installments, Bitcoin’s supply is finite. In addition, the halving plays a crucial role in keeping Bitcoin’s status as a deflationary asset.
The 2012 & 2016 Halving events in the past have been typically followed by a substantial price rally. However, this halving takes place in a completely different setting than that of its predecessors. The ongoing Coronavirus outbreak has analysts wondering if Bitcoin’s rally will follow a different road this time around.
Echoing this sentiment, Changpeng Zhao, Binance founder and CEO stated that “historic events don’t necessarily predict future events, but there’s a psychological level to it as well.”
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Miners Take the Toll
At the time of writing, the 2020 halving is not demonstrating many differences from the previous two. Moreover, we know that Bitcoin’s rally started going towards the bullish direction after a big sell-off soon after the halving took place.
However, miners are currently experiencing a double threat. Their block rewards were cut by half once again right in the middle of a global pandemic. Furthermore, we know that miners always expect the price of BTC to surge after a halving takes place. This is essentially what keeps miners motivated to continue with mining activities, as it is always profitable even after their reward is cut by half.
However, this time, some miners won’t be able to stay in the game for long which will lead to a decline in the hash rate. Nonetheless, along with the enhanced equipment and high efficiency levels, the hash rate will slowly pick up, making this a temporary issue. In a previous installment we explained how Coronavirus could affect Bitcoin’s status as a safe-haven asset. However, there’s no realistic way of knowing how the virus affects BTC price post-halving. This is primarily because COVID-19 was already a dominating factor before the halving took place.
What would have been the price of BTC if the virus never wreaked havoc across the globe? There’s no way of knowing.
COVID-19 Creates Higher Levels of Uncertainty
Although there is no way of knowing what the price of Bitcoin would have been without Coronavirus, analysts remain unsure. It’s clear that it is primarily affecting miners, who rely on Bitcoin’s price going up for their operations to remain profitable.
It now costs almost double for a miner to produce a successful block. This means that miners are more likely to hold on to their coins rather than selling once psychological levels have been adjusted. Messari’s research analyst Ryan Watkins believes that the economic fallout from the Coronavirus outbreak could present a major obstacle to Bitcoin’s bull run.
Conversely, Decred’s co-founder and project lead Jake Yocom-Piatt, believes that a pandemic presents a positive scenario for Bitcoin and cryptocurrencies. He states that “A pandemic is very much a deflationary type event. Economic activity is going to take a real nosedive. The ‘halving’ of bitcoin is a necessarily deflationary action.” He also adds that such an event would be bullish for crypto.
As mentioned above, it is impossible to know what the price of the coin would be today without Covid-19. However, miners and analysts have a massive cloud of uncertainty hanging over their head. As a trader, it’s fundamental to do your own research and conduct an independent analysis of the market situation. It is also important to gain a deeper knowledge of the industry. In times when even the experts cannot make accurate predictions about Bitcoin’s price, conducting your own research becomes even more crucial.