As Dan Morehead and Joey Krug, who are co-chief investment officers of blockchain-focused investment firm Pantera Capital, explained in a blog post on 30 January 2020, this is what block reward halving means for Bitcoin:
- every ten minutes, a new Bitcoin block is mined;
- at every block reward halving, the reward for mining new blocks is halved, i.e. 50% fewer bitcoins are generated by the network;
- block reward halvings are scheduled to occur every 210,000 blocks, i.e. approximately every four years, until Bitcoin’s hard cap (or maximum supply) of 21 million bitcoins has been reached.
Bitcoin’s last block reward halving occurred on 16 July 2016; this was when the block reward was reduced from 25 BTC to 12.5 BTC (when the Bitcoin network started life, the block reward was 50 BTC).
Although historically there has been some correlation between block reward halvings and significant increases in the price of Bitcoin in the months preceding/following this event “due to a perceived scarcity of supply”, not everyone in the crypto community is sure that this is set to continue.
There are essentially two schools of thought:
- The pessimists, who are strong believers in the Efficient Market Hypothesis (EMH), argue that “if we **all** know it’s going to happen then it has to be priced in”, meaning that they are not expecting a big increase in the price of Bitcoin due to the upcoming block reward halving.
- The optimists say that the fact that there is debate in the crypto community about how the next halving will affect Bitcoin’s price suggests that the next halving has not been fully priced. They also use the fact that very few retail investors really understand what Bitcoin halving means as a further bit of evidence to bolster their case. Finally, they say that Bitcoin’s strong price rallies around the time of Bitcoin’s first two halvings in 2012 and 2016 suggests that will see a strong price rally either in the run-up to the next halving or shortly following it.
Earlier today, the Blockstream CEO took to Twitter to point out an interesting fact: just as central banks around the world are busy doing massive amounts of quantitative easing (QE), Bitcoin is looking forward to what he calls quantitative hardening, which he says will arrive next month with Bitcoin’s next block reward halving.
Here is how the UK’s central bank, the Bank of England, explains quantitative easing:
“Quantitative easing is a tool that central banks, like us, can use to inject money directly into the economy.
“Money is either physical, like banknotes, or digital, like the money in your bank account. Quantitative easing involves us creating digital money. We then use it to buy things like government debt in the form of bonds. You may also hear it called ‘QE’ or ‘asset purchase’ – these are the same thing.
“The aim of QE is simple: by creating this ‘new’ money, we aim to boost spending and investment in the economy…
“Large-scale purchases of government bonds lower the interest rates or ‘yields’ on those bonds… This pushes down on the interest rates offered on loans (eg mortgages or business loans) because rates on government bonds tend to affect other interest rates in the economy.
“So QE works by making it cheaper for households and businesses to borrow money – encouraging spending.
“In addition, QE can stimulate the economy by boosting a wide range of financial asset prices.”
Here is Back’s tweet:
bitcoin halving is “quantitative-hardening”
fiat undergoing lots of politically driven quantitative easing.
bitcoin supply algorithm starts quantitative hardening next month.
(@pwuille quantitative hardening pun in bitcoincorrr rebrand joke. I like quantitative hardening!)
— Adam Back (@adam3us) April 2, 2020
He then went on to say:
people talk about hard money – bitcoin quantitative hardening is the sound of #bitcoin getting even harder.
all while the world loses its fiat mind and plummets into quantitative easing infinity.
— Adam Back (@adam3us) April 2, 2020
On Tuesday (March 31), a former Goldman Sachs partner, as well as Founder, Chairman, and CEO of crypto-focused merchant bank Galaxy Digital, suggested that this might be a good time to buy Bitcoin due to all the money printing being done by the world’s central banks. Novogratz referred to this money printing using the hashtag “#moneygrowsontrees2020”:
— Michael Novogratz (@novogratz) March 31, 2020