You have heard of quantitative easing, but what about the opposite — quantitative hardening? Jamie Redman, in a recent article that takes a look at the bitcoin halving writes: “The first two halvings correlated with gigantic price surges and speculators are assuming the next “quantitative hardening,” will produce the same effect.”
The first halving was in 2012 when the bitcoin price was around $11 per coin (imagine!!) and by the end of 2013 it was at $1,150. The second halving was in 2016 and it was followed by the spectacular bull run of 2017, when BTC rose from $650 in 2016 to $19,600 in December 2017. So, you can see why people think the same thing may happen this time, although not everyone agrees.
The quantitative hardening refers to the reduction in rewards for BTC miners caused by the halving. For example, after the last halving event, miners saw the 25 BTC reward slashed to 12.5 coins per block. This time the rewards will be reduced to 6.25 coins per block. The bitcoin system will continue to produce block rewards and halve every four years, until on or around the year 2140.
Redman explains that the way Satoshi Nakamoto built the bitcoin blockchain means it is a system that is “a synthetic form of inflation protection, meant to keep BTC scarce over the course of its history. At the moment, bitcoin’s inflation rate is around 3.8% per annum, and this will drop to around 1.8% after the halving this month. “Estimates also show that through the year 2025 and the halving in 2026, BTC’s inflation rate will be as low as 0.4%,” Redman says, and at 1.8% it will be lower than the world’s central banks’ benchmark reference rate. “Soon after that, the issuance will even outshine the precious metal gold,” which sounds enticing. This will happen because “it will be slower to produce than all the gold mined on earth being added to circulation.”
The halving has huge implications for miners, because every time it means their profits are cut by half, and in order for them to profit, the price must balance the amount of capital they are putting into operations. Moreover, if transaction fees alongside the price of bitcoin is lower than what they are spending, they will be forced to shut down
Many eyes will be on bitcoin’s price and hashrate after the halving. What we really want to see is a price rise above above what it costs to mine blocks, which should increase the hashrate and the system’s security. Tradeblock assumes the price per BTCneeds to be at least $12,500 per coin to avoid a mass exodus of miners.
As Redman says, the three most-watched data points during the next 24 hours and during the next few weeks will be the countdown clocks, bitcoin’s price, and the hashrate.
Are you watching?