Fuse switches sit inside an electrical supply cabinet inside the BitRiver Rus LLC cryptocurrency... [+] mining farm in Bratsk, Russia, on Friday, Nov. 8, 2019. Bitriver, the largest data center in the former Soviet Union, was opened just a year ago, but has already won clients from all over the world, including the U.S., Japan and China. Most of them mine bitcoins. Photographer: Andrey Rudakov/Bloomberg
The highly anticipated block reward halving of bitcoin is set to occur in May 2020. Despite popular belief, Morgan Creek Digital co-founder and partner Jason Williams said that it would have a minimal impact on the bitcoin price.
Halving unlikely to have immediate impact on bitcoin price (source: Jason Williams Twitter)
A block reward halving is a mechanism that is activated once every four years on the Bitcoin network that reduces the rate in which new BTC is mined.
Theoretically, halvings should eventually lead to an increase in the price of bitcoin, as less BTC flows into the market approaching its 21 million cap.
However, because halvings are anticipated years in advance by both investors and miners, whether bitcoin prices in halvings prior to the events occur remains unclear.
In an interview, Williams said that the cryptocurrency community is well aware of the date of the next halving and that miners tend to prepare before a halving occurs.
As such, he noted that the upcoming halving will not have any major effect on the price trend of bitcoin.
"For the community that are living this day to day they know the event is there. They even know the date (within a few days). Large miners that are holding BTC will have to sell to cover operational expenses or use cash as revenue halves.
New buyers have to come in to move this market up. So other than a new headline, the halving is being dealt with now by those who are operationally effected by it. Those that dont will be priced out of the mining business."
In previous halvings that occured in November 2012 and July 2016, it took well over a year for the market to start surging in both instances. In 2016, as anexample, after the halving occured, the bitcoin price slumped from $707 to $570.
It wasn't until December 2016 that the bitcoin market started to engage in an extended rally.
While halvings could havea long-termimpact on the price of bitcoin, they are unlikely to have an immediate effect on the short to medium-term price trend of BTC upon activation.
Still, some reports indicate that new investors are generally unaware of bitcoin halvings, which could be a variable as halving nears.
Grayscale, an investment firm under Digital Currency Group that operates the Bitcoin Investment Trust (GBTC), said in a report that many of the market participants it interviewed had no knowledge of halvings.
"The halving is close enough that its time to start talking about it more seriously, but far enough out in the future that its unclear whether its priced into the market efficiently. In fact, based on anecdotal conversations with market participants, we were surprised to learn that many of them were not even aware of this event," the report read.
As a scarce asset with a fixed supply at 21 million BTC, a block reward halving that affects the supply of bitcoin is likely to influence the price. But, based on previous halvings, it may be far-fetched to claim that halvings trigger immediate price reactions and strong rallies in the short-term.
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