Bitcoin price chart incl. halving events, log-scale
Blockchain & cryptocurrencies

Cryptocurrency 101 – Bitcoin Halving & Price Prediction

In my article “Cryptocurrency 101 – What Are Cryptocurrencies?“, I already explained what a cryptocurrency is and how blockchain technology works. The network is permanently secured and verified by thousands of computers worldwide (so-called miners). For finding the correct hash of a new block miners are currently rewarded 6.25 BTC. But in the beginning, when the Bitcoin network was launched in 2009, the so-called block reward was 50 BTC per block. How does it come that miners are now rewarded only 6.25 BTC per block?

The Bitcoin halving

The reason for that is the so-called Bitcoin halving. This event takes place every 210,000 blocks, or roughly every 4 years, and reduces the block reward by 50%. The first halving took place in November 2012, reducing the reward from 50 to 25 BTC per block. The second halving took place in July 2016, reducing the reward further to 12.5 BTC per block. And the third halving just took place in Mai 2020, leading to a block reward of 6.25 BTC per block mined. In the following table you will find an overview about the halving events that already took place and when the next halving is estimated.

Halving event

Halving date

Block number

Block reward (BTC)

Total mined BTC until next halving

Launch

Jan 2009

0

50

10,500,000

Halving 1

Nov 2012

210,000

25

5,250,000

Halving 2

July 2016

420,000

12.5

2,625,000

Halving 3

May 2020

630,000

6.25

1,312,500

Halving 4

Approx. 2024

840,000

3.125

656,250

Halving 5

...

...

...

...

This routine is hard coded in the Bitcoin code and will continue to reduce the block reward, until the max. supply of Bitcoin of 21,000,000 BTC was mined. At that time, block reward will be reduced to zero. The current circulating supply of Bitcoin is 18,500,000 BTC and the next halving will take place approximately in 2024.

Max. supply of BTC:

21,000,000 BTC

Circulating supply of BTC:

18,500,000 BTC

BTC left to mine:

2,500,000 BTC

How long will it take to mine all Bitcoin?

Although, about 90% of all Bitcoin were already mined within the first 11 years since start of the network the max. supply will not be reached in the short- to mid-term. Due to frequent reduction of the block reward with every halving the speed of mining new Bitcoins decreases exponentially. Currently it takes about 10 minutes on average to mine a new block. Projections show that all Bitcoin will be mined approximately in the year 2140.

Will the Bitcoin network still be operatable without block rewards?

It is impossible to estimate whether Bitcoin will still be around 120 years from now or not. I think it is likely that at some point Bitcoin will be replaced by another more efficient digital currency. Unfortunately, Bitcoin is a highly energy-intensive network, which at the time of writing has an estimated energy consumption of 78 TWh per year. That equals the total power consumption of Chile. Ccheck out the following website for some interesting stats about Bitcoin’s global footprint: https://digiconomist.net/bitcoin-energy-consumption. And power consumption still continuously increases.

But in theory, the network will still be operatable, even if the block reward will be reduced to zero. Miners do not only receive block rewards but in addition the transaction fees connected to the transactions of every block. Thus, if the transaction fees are high enough it will still be profitable for miners to validate the network. But why should we worry about it if that will happen 120 years from now.

How does the halving affect Bitcoin’s price?

First, the max. supply of 21,000,000 BTC is rather low compared to the world’s population of around 8 billion. If you had to distribute 21,000,000 BTC to the entire world population every one of us could only hold around 0.003 BTC. Moreover, it is estimated that roughly 1,500,000 coins were lost, especially in the early years when Bitcoin was unpopular and the price only a few cents. This reduces the available Bitcoin supply by around 7%. Thus, Bitcoin is a very scarce asset.

Second, Bitcoin is subject to inflation, but the inflation rate is rather low compared to other assets, e.g. the U.S. dollar. And the described frequent halving will further decrease inflation rate and even increase scarcity. Commercial miners usually do not hold their Bitcoin but sell them in the market to cover their expenses. Reducing block rewards leads to a reduction of available Bitcoin that are sold in the market by miners. So, if we apply the rules of supply and demand affecting the price a block reward halving in general is a bullish case for Bitcoin’s price.

Let’s take a look at the Bitcoin price chart since 2011 and how the price developed after a halving event took place:

Bitcoin price chart incl. halving events, log-scale; source Tradingview
Bitcoin price chart incl. halving events, log-scale; source Tradingview

What we can determine from this chart is that post-halving Bitcoin’s price always has reached to new all-time highs (ATH), followed by a long and devastating bear market and accumulation phase, in which Bitcoin lost 85 – 95 % of its value. Moreover, it can be clearly identified that reaching a previous ATH accelerated the price increase massively. When Bitcoin crossed $32 in 2013, or $1.200 in 2017 Bitcoins price literally exploded in the following months. The similarities in the chart are astonishing and it seems that Bitcoin’s price is following a cycle tied to the halving event.

But it is obvious that the growth rate from ATH to ATH is declining. While the growth rate during the bull market in 2013 topped out at 3,600% between the old and new ATH, it reduced to ~1,600% during the bull market in 2017. But this totally aligns with what is expected. The higher the market capitalization for Bitcoin is (currently $300 billion), the more money needs to access the market to achieve such results. In the following you will find an overview about the most important stats from the chart:

Halving

Pre-halving ATH

Post-halving ATH

Price increase ATH to ATH

Market Crash pre-halving

Nov 2012

~ $32

~ $1,200

~ 3,600 %

~ 94%

July 2016

~ $1,200

~ $20,000

~ 1,600 %

~ 86%

May 2020

~ $20,000

-

-

~ 85%

Price prediction for Bitcoin

If we take a close look on the current price for one Bitcoin (yellow circle; $16,000), and how similar the price moves in terms of growth rate and timeframe, it seems that we will reach the previous ATH of $20,000 per Bitcoin soon. This could trigger a massive break out and bull run leading to a bubble structure and blow-off top again. But pullbacks are expectable in order to confirm support levels on the way up. A reasonable price target is in the range of $75,000 – $85,000 (maybe even up to $100,000) for one Bitcoin, based on the assumption that the cycle will repeat as in the past. This would result in a 270% price increase from current ATH to new ATH and also aligns with price targets that can be determined based on the stock-to-flow model (you can check out a live S2F-model for Bitcoin here: https://digitalik.net/btc/sf_model).

A price of $75,000 per Bitcoin would lead to a market capitalization of around $1.4 trillion for Bitcoin, considering a circulating supply of 18,500,000 BTC. Compared to the market capitalization of gold (~ $10 trillion) or the stock market (~ $90 trillion) this does not seem to be unrealistic. Check out the following website for some stats in regards to the global wealth and money supply: https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/.

In addition, if we apply Fibonacci analysis on the entire bear market during 2018 – 2020 the 4.236 Fibonacci extension provides the same price indication of ~ $75,000. Thus, based on two different methods of analysis a reasonable long-term price target of $75,000 can be determined for Bitcoin.

Bitcoin price chart Fibonacci analysis, log-scale; source: Tradingview
Bitcoin price chart Fibonacci analysis, log-scale; source: Tradingview

There are a lot of other price predictions out there, calling for a $300,000 or even $1,000,000 Bitcoin price. Is it possible that Bitcoin’s price will reach those targets? Yes for sure it is, but the charts currently do not indicate that. Due to that, a target of $75,000 seems to be far more reasonable. However, considering the current monetary policy, inflating money supply could additionally accelerate price increase of alternative assets like Bitcoin.

Short-term price analysis

Currently, Bitcoin is battling against the 0.768 Fibonacci retracement level ($16,000). In the upcoming days, it is important to take a close look if Bitcoin will be able to cross and close above this level or not. If not, a pullback to the 0.618 or even 0.5 Fibonacci retracement level could be the result, to test these levels and confirm them as a support. This would bring the price of Bitcoin back down into the range of $11,500. At least, a test of the 0.618 level ($13,500) seems to be likely before the uptrend is continued, because this level was not tested yet after the breakout. The main question right now is if Bitcoin will break out to the previous ATH now or consolidate first in the price range between $13,500 – $16,000 for a while.

What do you think about my analysis? What are your price targets for Bitcoin during the upcoming bull market? Leave me a comment. Subscribe to my newsletter or follow me on Twitter, if you would like to get a notification when I publish a new article. You may also like:

Cryptocurrency 101 – What Are Cryptocurrency?

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