It is currently May 2020 and the Third Bitcoin Halving is upon us.
This will have the following implications:
Miners will now receive only 50% of the Bitcoins as a block reward, earning 6.25 BTC after the halving instead of 12.5 BTC.
Since the block reward will be halved, the number of Bitcoins entering circulation will be halved too. So now 6.25 Bitcoins will be created every 10 minutes for the next 4 years before being halved again.
This means over the next 4 years, 1,312,500 Bitcoins will be produced and after the next halving (2024) only 656,250 Bitcoins will be generated until the 5th Bitcoin Halving in 2028.
As we all know, increased scarcity, coupled with high demand always increases the market value of an asset.
Whilst many people have their opinions on how Bitcoins market value will be affected, a mathematical prediction model paints a bullish picture of where Bitcoins price could be in the time following the halving.
Statistical model predicts a fair value of $55,000 to $100,000 for Bitcoin with 95% accuracy
The article contained the image below, which shows Bitcoins total market value over time, modelled using a linear regression.
The linear regression model predicts a $55,000 to $100,000 price for Bitcoin, this is only 5x-10x, which if true would mean that Bitcoins value doesn’t even grow as much as it did after the previous halvings.
This model proves what we all already know, that there’s a significant relationship between Bitcoins scarcity (stock-to-flow ratio of SF) and its market value.
As you can see in the lower right corner of the model, this relationship (SF + Market Value) has an R Squared (R2) of 95% (0.947328), showing a very high correlation between the two data points.
To help you better understand the above model, the following data points are represented as follows:
- Gold is represented using a large yellow circle
- Silver is represented using a large grey circle
- Bitcoin is represented by the small, rainbow coloured circles which encircle the black power regression line.
- The color of the Bitcoin dots are influenced by the “months until halving”, which is indicted on the right hand side of the model.
Okay, so Bitcoin’s value is driven by scarcity, we all knew that right? How is this information important? Well, as explained earlier, the Bitcoin halving reduces the block reward for mining by 50%.
This means that Bitcoin miners will earn 50% less Bitcoins, cutting in half the amount of new Bitcoins that enter circulation. This event happens every 4 years and has already happened twice.
The 2020 Bitcoin Halving will reduce the block reward from 12.5 Bitcoins per block to 6.25 Bitcoins.
Now lets go back to the linear regression model.
As you can see, as we get closer to the halving (referenced by the small dots shifting through green and blue) the market value of Bitcoin hovers between the $55,000 and $100,000 mark.
This doesn’t however mean that Bitcoin will magically shoot up to $100k once the halving occurs.
In fact by looking at historical data we can see that it actually takes much longer for Bitcoins value to grow exponentially after a halving:
- After the 2012 Bitcoin Halving, it took a year for Bitcoin to go from $11 to $1,100 in 2013.
- After the 2012 Bitcoin Halving, it took a year for Bitcoin to go from $600 to $20,000 in 2017.
The First Bitcoin Halving in 2012
The first Bitcoin halving occurred on November 28th 2012 when one BTC was worth around $11. A year later, bitcoins price surged to a mouth watering $1,100 in 2013, a price never before seen with Bitcoin.
It had only been one year since the halving and Bitcoin had grown 100x.
Bitcoins price eventually fell to around $220 and it remained below $1,000 for the next few years. Even at its bottom Bitcoin was still up 20x from it’s price before the halving.
The Second Bitcoin Halving in 2016
The second Bitcoin halving occurred during July 2016. Bitcoin maintained a price of around $600–$700 before rising to $20,000 during the 2017 bull market.
Bitcoin experienced a growth of over 33x from its price before the second halving and over 1,818x from its price before the first halving.
Bitcoin’s recovery on the road to the 2020 halving
The chart below shows how the value of Bitcoin has grown after every halving as well as the number of Bitcoins that will be generated during each 4 year period between the halvings.
As we know, recently Bitcoin reached a price point of $10,000 on Thursday, the first time since February 24th and after a slump to $4,656 in March.
What to expect from the Third Bitcoin Halving in 2020 according to Experts
Well it is May 2020 and the halving is upon us so lets look at what some top experts have to say about how the halving will affect Bitcoin.
When I hear people talking about a bitcoin “correction” I’m thinking $100k, maybe $1m. That’s what’s correct.
With a fixed supply asset, as demand increases, we continue to see price appreciation. One of the largest drivers of that demand or increase in scarcity is the halving in May 2020 which I think is going to be a big moment and is about 18-19 months from the start of 2021.
Anthony Pompliano continued to say:
So I think that will be a big moment there and something that we see in the past that has caused a large appreciation in price.
“If history were to repeat itself, Bitcoin would peak in August 2021 — at $533,431.”
The overall sentiments appear to bullish but again they all seem to agree that Bitcoins price could grow gradually, like we have seen with the previous halvings.
Final thoughts
Personally, I feel that Bitcoins market value will follow historical trends and grow to a new high after about a year. The increased scarcity, increased awareness and adoption, coupled with previous halving occurrences make me positive about this.
Secondly, the linear regression model seems to mirror the expectations of various experts, despite actually being more conservative with a $55k to $100k outcome.
I suggest you buckle up and hang on, the next few years will be very interesting.
I hope you enjoyed this story, feel free to check out the useful resources below:
Comments
Tags
Subscribe to get your daily round-up of top tech stories!
