Bitcoin, the world’s largest cryptocurrency by market cap, is gearing up for a halving in May 2020. Like any blockchain, Bitcoin must undergo updates. A halving is a form of system update that occurs after 210,000 blocks have been mined. This has happened twice since 2009, most recently in 2016. With one due next year, we’re taking a look at why the next Bitcoin halving could be the most dramatic one yet.

What is a Bitcoin halving?

A Bitcoin halving occurs approximately once every 4 years, after 210,000 blocks have been mined by the system. According to eToro “a Bitcoin halving means that the rewards that Bitcoin miners receive for validating transactions are reduced by 50%. So, after the last halving event in 2016, the blockchain went from mining 3600 BTC per day to mining 1800 BTC. The Bitcoin halving date scheduled for May 2020, only 900 BTC will be mined a day.” This means that the reward for mining is reduced by half. Currently at 12.5 BTC per block, the reward will fall to 6.25 BTC. So, let’s take a look at why the next Bitcoin halving could be the most dramatic one yet.

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Heralding a bull run

Historically, Bitcoin bull runs have been linked with halvings. Looking back at November 2013, approximately a year after the first halving in 2012, Bitcoin reached $1,000, an all-time high at that point. In December 2017, Bitcoin’s price peaked at $20,089 (according to CoinMarketCap), which was preceded by a halving event in 2016.

With many analysts predicting that Bitcoin could reach a market cap of $1 trillion in the near future, and trading platforms like eToro increasing accessibility into the market, it’s very likely that the next halving event could herald a historic bull run for the coin.

Active users

With 634,708 daily active users as of 15 November, it’s likely that Bitcoin’s active addresses will skyrocket leading up to, and following, the Bitcoin halving in 2020. This will lead to more transactions on the blockchain, and could drive demand – further boosting Bitcoin’s price. However, active addresses really only tell half the story. The amount of funds that pass through the blockchain, known as network volume, is also a vital indicator of network activity. It shows not just how many accounts are conducting transactions, but also how much is being transferred. While the two are inherently linked, taking a look at network activity on the run up to the halving can also be a key measure in realizing just how much of an impact an event like this can have on the network.

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Institutional Interest

According to a report by Grayscale, institutional investment in Bitcoin grew dramatically over the course of 2019. Grayscale reported that, “Inflows tripled quarter-over-quarter, from $84.8 to $254.9 million, despite recent declines in digital asset market prices.” The report continues, saying that “a majority of investment (84%) came from institutional investors, dominated by hedge funds.”

Why the increase in institutional interest? They’re coming to the realization that Bitcoin can be a good way to hedge against economic and political risk.

According to Michael Sonnenshein from Grayscale, “Most of our institutional investors are actually not crypto hedge funds. It really runs the gamut — we have tons of global macros funds who maybe look at digital assets as a way to short fiat money or thinking about all the economic and political turmoil going on globally.”

Is it a coincidence that institutional interest is also increasing around the time of the BTC halving? Not likely. The halving is used as a tool to combat inflation within the Bitcoin ecosystem, and Bitcoin was created in response to the global recession of 2008. With a recession imminent, it’s likely that institutional investors see Bitcoin as a way to hedge against a global financial crisis.

What’s next?

How Bitcoin responds to the halving event in 2020 remains to be seen, but historical evidence shows that it’s likely that we’ll see a bull run in the near future. With many analysts already arguing that Bitcoin could reach $1 trillion very soon, it’s possible that all of the factors mentioned in this article will contribute to the rise of the cryptocurrency. Now that we’ve taken a look at why the next Bitcoin halving could be the most dramatic one yet, it’s pretty clear that we’re in for a wild ride over the next couple of years.

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