Should I worry about the Bitcoin halving?

As you probably know, Bitcoin halves the amount paid per block ever 210,000 blocks. That’s 210,000 10 minute blocks, which yields 2.1 million minutes or roughly 4 years. (In case you’d ever wondered how many minutes there were in 4 years.)

In May of 2020, Bitcoin will halve again. It means that thousands of miners around the world will start earning half the amount of BTC than they do now.

Until May 24 2020, miners will receive 12.50 BTC for solving a block. Of course mining pools will split this amount between all the miners who contributed. During some time near May 20 to 24th, or thereabouts, the reward will fall to 6.25 BTC per block.

Should you be worried?

In short, no.

You don’t need to be concerned at all. The 2 scenarios here are you’re either a miner or a HODLer. Let’s take a look at each case.

1. Miners

Miners are obviously the most affected by this. The rewards get 50% lower per block after the halvening and consequently the amount of BTC per block also gets reduced.

Interestingly, though, the U$ reward per block does not hurt miners as much! Traditionally some time after halvings, and despite much speculative attacks on the price, Bitcoin U$ price tends to increase twofold over time! Miners who have cash reserves and can withstand the initial impact usually end up making the same amount of U$, or compensating the halving with their already mined reserves. Remember : mining doesn’t have to be an immediate investment. Mined reserves can be held for the long run as long as miners can sustain the cash flow to keep mining and pay current bills. For instance: those who mined BTC back when the reward was 50 BTC per block (2009 to 2012) would be holding millions of U$ today if they were able to hold the BTC until now.

So, miners are the ones most concerned about the halving. It’s all about having enough reserves to be able to hold on until BTC doubles in U$ price. Note, though, that lots of miners aren’t in it for the U$ but for BTC itself. Unfortunately the BTC supply will dry up. It’s a deflationary currency and will become scarcer and scarcer with time. Halvings are just one of the events which cause BTC to become rare. Monetary losses from all sorts of events are very frequent in BTC. Lost keys, death and failed hardware are just some examples.

2. HODLers

If you’re a HODLer then you have nothing to fear.

Halving will simply make the amount you hold more valuable. It’s a deflationary system where investors are rewarded for holding long term. Same ideas as miners apply here: if you don’t have a cash flow problem and can afford to keep holding then halvings are your friends.

Since miners have to pay for periodic expenses using fiat money a lot of BTC gets dumped for fiat right upon being mined. This causes BTC price to drop. With the halving the amount available to dump drops 50% and therefore the U$ price of BTC tends to increase. This is the main effect speculators look forward to when investing in BTC before the halving. So naturally there should be a price increase during some time before the halving. Litecoin is currently experiencing this effect. LTC will halve their block rewards in August, approx 2 months from now, so price has been increasing a lot recently. Also their mining hashrate is breaking records and hitting all time high, meaning miners are accumulating as much LTC as they can before the halving. By watching what’s happening with Litecoin you can get a pretty good idea what will happen with BTC in one year’s time.

I hope this short intro gives you a better idea about what happens to price near and after a halving. In all cases if you have a bit of fiat reserves which allow you a couple months cash flow without selling the crypto, then you are likely safe and you have time to make sound investment decisions. If, on the other hand, you must sell the crypto immediately to settle urgent bills then the halving is not a good time to speculate (high volatility periods are rarely ever good for cash strapped speculators, it’s basically just gambling).

 - On January 6, 2020