2020 is an important year for Bitcoin, and many things are likely to happen. One of the most important events is the expected reduction to half of the bitcoin block that will take place in May 2020. It is almost certain that the reduction by half will have an impact on the price of bitcoin. And if we take this into consideration and other upcoming events, it could well turn 2020 into the year when all records are broken.
Bitcoin block halving
Bitcoins will not be infinitely ‘created’. A total of 21 million bitcoins will be put into circulation. Actually a little less, to be precise. A total of 20,999,999,9769 bitcoins will be mined. These bitcoins are issued at a predictable rate through block rewards for miners.
That reward is halved every 210,000 blocks. Since a block is found approximately every ten minutes, we can calculate that it takes four years to extract 210,000 blocks. At first, miners received 50 bitcoins per mine block, four years later, the reward was 25 bitcoins, and currently a miner receives 12.5 bitcoins per block. After the bitcoin block is halved by May 2020, the reward will consist of 6.25 bitcoins. In this way, fewer and fewer new bitcoins reach the market and there is controlled and predictable deflation. Demand for bitcoin is expected to continue to grow, but supply cannot grow proportionately.
When the reduction by half causes demand to exceed supply, the value of bitcoin increases. We must say that bitcoin is still relatively young, and that the cryptocurrency market does not always behave according to what we are used to in traditional financial markets.
It’s also interesting to take a look at the reductions to half of previous blocks. Some traders believe that the half-half reduction of the bitcoin block has a direct effect on the price.
In 2012, for example, the first cut was halved. A year later, bitcoin reached a provisional all-time record. The same was the case in 2017, a year after the mid-2016 reduction.
How is that possible? Currently 1,800 bitcoins are mined every day. The vast majority of these coins are sold directly by miners to cover energy costs, for example. When the reward is halved, the sales pressure decreases. This could have positive price consequences.
Since 2016, the million-dollar question has been: Will institutional parties be allowed to offer bitcoins? The fact that they have not done so is not the responsibility of the institutional parties. There is more than enough interest on the part of Wall Street and the large Asian markets to start trading cryptocurrencies and bitcoin-derived financial products.
In the United States, the main obstructions are regulation, strict SEC, and obtaining a BitLicense. Any company that wants to trade cryptocurrencies in New York (where Wall Street is located) needs a BitLicense, which is a permit granted by the New York State Department of Financial Services. And it’s not easy to get one.
The SEC’s role is to evaluate applications from institutional parties, for example for ETFs, and to approve or reject them. This process takes a long time because the SEC is allowed to postpone its decision several times. This also happened with previous requests. There are currently three main applications under review. The expectation is that the SEC will decide on them by the end of 2020.
If all are approved, a lot of money from large investors will go to the cryptocurrency market and that could increase the price.
In short, 2020 will be an important year for the development of bitcoin prices. The price rose again in 2019, after some sharp falls in 2018. Will 2020 be another great year?