The price of Bitcoin has been known to be highly volatile over the short term, but the past few months have been a particularly wild ride for the crypto asset. After hitting the 2020 peak of over $ 10,000 in mid-February, the price of Bitcoin was down $ 5,000 a month later. Since then, the world’s most popular cryptocurrency price has improved slightly to around $ 7,300.
These extreme price fluctuations have many speculators wondering what will happen with Bitcoin next, especially in the context of massive government debt-based spending in response to the Coronavirus pandemic. Former Facebook executive Chamath Palihapitiya recently noted that there is now a five or ten percent chance that one day Bitcoin will be worth millions of dollars. Earlier this year, Tesla CEO Elon Musk noted that he is not convinced that the cryptocurrency could become a major database for currencies worldwide. In addition, billionaire investor and founder of Bridgewater Associates, Ray Dalio, believes that investors will turn to gold rather than Bitcoin during a potential crisis in the world’s top fiat currency.
This buzz around Bitcoin’s price may only increase over the next 34 days, as the third halving event in Bitcoin’s history approaches. For those who don’t know, halving in Bitcoin is when the number of new Bitcoin created roughly every ten minutes is cut in half. This change in Bitcoin’s issuance rate is expected to occur every 210,000 blocks (about four years).
Blockware Solutions CEO Matt D’Souza recently discussed the implications of the upcoming halving on an episode of The Stephan Livera Podcast. Blockware Solutions recently reported in full on how the level of efficiency achieved by miners on the network greatly affects the price of Bitcoin. The report also covers this mining-related phenomenon in the context of halving.
“It’s kind of like this perfect storm for Bitcoin,” D’Souza told Livera during their conversation.
Capping Miners is Good for the Bitcoin Price
While halving Bitcoin’s issuance rate has obvious effects on the supply-side economics of the Bitcoin market, Blockware Solutions argues that the implications of halving Bitcoin’s price go far beyond supply changes.
As outlined in their recent report, halving has the knock-on effect of putting newly created Bitcoin in stronger hands due to the fact that inefficient miners with small margins will be pushed off the network once the prize subsidy a block cut in half.
“Capping is a really good thing,” he explained D’Souza. “It removes the inefficient miners. They are no longer getting their rewards. Their rewards are allocated to the efficient miners – the properly used men who have low [cost] electricity. And those are the strong hands. We want Bitcoin in their hands because they don’t have to sell so much Bitcoin. Their profits are good, they don’t have to sell as much Bitcoin, there is less selling pressure on the network, and the price of Bitcoin could increase. ”
According to D’Souza, inefficient miners tend to add more sales pressure to the market because a higher percentage of their total mining rewards have to be sold to pay for things like electricity bills.
“It’s going to be extremely healthy,” added D’Souza, who is also the CEO of Blockware Mining, referring to the upcoming halving event. “We encourage the halving. We do not fear it. We welcome it. ”
That said, D’Souza also explained that there may be some short-term pain in the price of Bitcoin before the inefficient miners remove themselves from the network. This is because some miners will be motivated to operate at a loss for a period of time due to the nature of their business contracts.
“There are all sorts of deals out there that are going to make some miners act at a loss, which creates more sales pressure because all the Bitcoin they are mining is going to be sold,” he said D’Souza. “And then they have to take advantage of their treasury. And that also has to be sold, so that’s more sales pressure. So, that all needs to blow out. ”
In D’Souza’s view, it could take two to three months for inefficient miners to be blown off the network if the Bitcoin price stays around the current price level.
Additional Effects of Halio on the Bitcoin Price
In addition to the benefits of mining miners, D’Souza discussed other ways that halving next month could affect Bitcoin’s price. For one, the CEO of Blockware Solutions expects the event to affect the demand side of the Bitcoin market as well.
“Everyone knows that halving is usually bullish,” says D’Souza. “People understand that supply-side economics will improve, so that’s going to improve the demand-side system.”
D’Souza also highlighted that miners are starting to parallel their Bitcoin, which should ease sales pressure on the network. When miners can borrow fiat against their Bitcoin holdings, they no longer sell Bitcoin in order to pay their bills.
“It’s another incentive, basically, to improve the supply side,” says D’Souza.