In brief This Bitcoin halving will be completely different from previous halvings.

Bitcoin miners will be four times worse off, taking the price drop into account.

Bitcoin's narrative is changing with the price swings.

Traditionally, a Bitcoin (BTC) halving—when the supply of Bitcoin issued as mining rewards is cut in half—has been seen as a very bullish development for the cryptocurrency. The event, which happens only once every four years, is generally preceded, or followed by, a rise in the price.

But 2020’s halving, due in 50 days, is a very different beast. The economic fallout caused by the coronavirus crisis has caught Bitcoin on the hop. Its price plunged 50%, from $9,000 to $4,500 last week, throwing into question its value as an uncorrelated asset, and a safe haven.

The Bitcoin halving is coming in May. Image: Shutterstock.

In such dire circumstances, what effect—if any—will the Bitcoin halving have on price? Decrypt rounded up some analysts, miners and investors to find out.

Bitcoin halving: a bullish event?

Bitcoin’s first two halvings, in 2012 and 2016, were famously followed by juicy price rises, but also some wild fluctuations in the cryptocurrency’s hash rate—the computing power of the miners running the Bitcoin network.

Bitcoin’s first halving was mostly about the protocol proving itself and establishing cryptocurrency as a truly scarce digital asset, and it went from strength to strength in subsequent months. The second halving, meanwhile, led to a bout of volatility, but the price finished the year at a historical high.

But this, third, halving differs in several material respects.

“Bitcoin’s third halving will follow a catastrophic price decline, not to mention immense damage to the theses of Bitcoin as both an uncorrelated asset and safe haven,” Matthew Graham, CEO of investment firm Sino Global Capital told Decrypt.

As if that’s not enough, there’s also trouble down the pit.

Bitcoin miners are getting hit twice

The Bitcoin halving was already going to impact Bitcoin miners, cutting their revenue streams in half. But the sudden shock to the price of Bitcoin means things will be four times as bad.

"The Bitcoin price has fallen to a level where only the most efficient miners are still profitable, Ross Middleton, CFO of non-custodial crypto exchange DeversiFi told Decrypt. “If the Bitcoin price does not rally into the halving then there could be another significant price crash as inefficient miners capitulate and sell inventory onto the market.”

Miners didn’t even see it coming. The whole market was betting on a potential bull run from the BTC halving. “Miners were hoarding Bitcoins expecting the price to rise into the halving. We had seen miners accumulating stocks since the third quarter of last year,” Pankaj Balani, CEO of Delta Exchange, told Decrypt.

In 50 days time, miners will get half the amount of Bitcoin, and will only be able to sell it for half the price it was worth just over a month ago. Unsurprisingly then, a substantial number of miners have sold or junked their rigs—known as capitulation—because they’re no longer profitable. By one approximation, for an average miner to be profitable today, the price of BTC has to be around $7,400. Some miners have even found other ways to make ends meet.

Mati Greenspan, founder of crypto analytics site Quantum Economics told Decrypt that while miner capitulation reduces the hash rate, it also allows new players to enter the market. That is, as long as they can find cheap enough electricity and mining rigs.

Per Balani, there’s no cause for alarm: “Though a big chunk has been capitulated with the move down, there is still some supply in the system, and any rallies in Bitcoin are going to get sold off,” he said.

Artur Schaback, COO of peer-to-peer crypto exchange Paxful, broadly agreed. “We’re still seeing that hashing power has not decreased so the miners have not switched off their machines,” he told Decrypt, and he also predicted a favorable outcome: “Once the pandemic is over, we will see confidence up and people can expect mass growth.”

But that might not be for a while yet.

Bitcoin’s changing narrative

What seems certain is that, in the lead up to the third halving, Bitcoin’s narrative has changed.

Not long after the cryptocurrency was born, new narratives evolved around it. It became digital gold, a store of value, and a hedge against the financial system. “Bitcoin is well on its way to becoming the next global reserve currency,” Bitcoin influencer and co-founder of Morgan Creek Digital, Anthony Pompliano, tweeted in November, last year.

But the recent price crash is putting these narratives into question.

“Sure gold is down 2.5% today, but Bitcoin is down 25%, or ten times as much. Is this really digital gold?” Peter Schiff, CEO of Euro Pacific Capital, tweeted, on March 12.

He wasn’t the only one. “Obviously it isn’t the end of Bitcoin, but it should be the end of the nonsense idea put forth by BTC maximalists that Bitcoin is a store of value because Bitcoin is useful as a store of value,” Bitcoin.com founder Roger Ver told Decrypt, in a previous interview.

And even fervent Bitcoiners are starting to adapt their language.

“If Bitcoin isn't gold 2.0, then what is it? The fact that it's not acting how you might expect only underscores just how early it is,” Tyler Winklevoss, co-founder of crypto exchange Gemini, tweeted, on March 14.

“Bitcoin is not a hedge to pandemics, it is a hedge to fiat regimes. A sudden, negative demand shock in the global economy’ will affect every asset, including gold, in the short term.,” Winklevoss tweeted, the following day.

The Bitcoin Halving: a defining moment

Going into the halving, diminishing returns for miners, coupled with the brutal stock market crash poses a big challenge for Bitcoin. And how its price fares will affect the narrative built around it.

"The halving in May will tell us more about whether Bitcoin truly is a safe haven following the corona-driven collapse of fiat banks,” Harry Halpin, co-founder and CEO of Nym Technologies told Decrypt. “It’s hard to tell now.”

But it may also herald a defining moment for the technology.

It’s evident that we’re living through a time of unprecedented change. One of those times where decades happen in a matter of weeks, to bastardize Lenin’s famous quote. But such a period may well be extremely conducive to the Bitcoin narrative.

A decline in trust in public institutions; increasing decentralization; working from home; concerns about the durability of the post Bretton Woods consensus; the weakening of US dollar hegemony; massive quantitative easing and monetary stimulus—so much of what we’re seeing now is aligned with the same conditions and concerns that inspired Bitcoin in the first place, said Matthew Graham.

“Most of the world is facing its greatest challenge since the very conditions that birthed one of the greatest economic experiments in modern history,” he further explained. For this reason, he sees the future that’s hurtling towards us as a time of unprecedented opportunity.

“We see the reasons and conditions for Bitcoin’s existence repeated in the news headlines literally every day. Thus, despite the recent tumult, it’s hard to think of conditions that could be more fortuitously timed for Bitcoin’s third halving, and we expect not just extreme volatility but also a bullish crypto climate,” said Graham.

He’s not the only bullish Bitcoiner left. Despite the worrying conditions for Bitcoin miners on the road ahead and the loss of faith in the Bitcoin narrative as a store of value, and a hedge against the global economy, some still have faith. Digital Currency Group CEO Barry Silbert, who has investments across the cryptosphere, simply tweeted, “I'm buying. This is why Bitcoin was invented.”