Bitcoin has been the talk of the town in recent weeks, from retail to institutional interest. In just a few hours, Bitcoin’s block reward will be reduced by 50% for the third time.
The world’s most popular cryptocurrency is mined by computers worldwide via the solving of complex mathematical equations. The users who get to the solutions first are allowed to include transactions in the upcoming block and they are rewarded for this effort with newly mined Bitcoins.
Currently, every 10 minutes on average a new block is mined and the reward is 12.5BTC, in a short few hours this will be reduced to only 6.25BTC. This means that miners; whom are business owners with expenses denominated in fiat currencies, will see their profitability reduced by half. Those who are inefficient and run small mining operations will likely find it difficult to remain profitable and will need to temporarily/permanently close down leaving space only for miners that are large and efficient enough.
It has been a popular belief in the cryptocurrency ecosystem that the halving brings forward a parabolic increase in price. That argument is majorly flawed by two basic principles:
- This assumption is made on two-data points only which is hardly enough for any pattern recognition
- By this argument, Bitcoin’s price would parabolically increase every 4 years and reaches an infinite amount of value (quadrillion+)
Previous parabolic advances seen have been due to new market participants entering and hence novel capital hitting the market and surging up demand. Which is due to its increasing popularity and global awareness.
That is currently likely being seen with institutional capital with legendary traders such as Paul Tudor Jones are considering the asset to be a great hedge against upcoming inflation; due to the excessive printing of money.