Insider’s Perspective on Bitcoin Halving

“Bitcoin passed a watershed this week. For only the second time in an eight year history the reward paid to miners for maintaining the Bitcoin network halved. I wrote about this upcoming event back in April, See here.

My call turned out to be accurate, and what was at the time an un-discounted market-moving factor triggered a significant rally in prices. 

So where do we go from here?

Firstly we can dispel one concern that had hung over the market. It is somewhat technical so bear with me!

The Bitcoin network comprises a “stack” of many thousands of machines relaying bitcoin transactions, solving the mining puzzle (a.k.a hashing), and being autonomously allocated new bitcoin by the network itself. Analogous to a stack of electricity generating units the stack ranges from the least efficient to the most efficient. Efficiency in turn is driven by power costs and the amount of electricity that a unit consumes per hash. Both the size of the network and the advancing efficiency has stunned most observers over the last few years.

As can be seen from my title chart above however the rise in prices this year meant that while the halving was, in bitcoin terms, from 25 bitcoin per block to 12.5, the effective drop in the US dollar value of the mining reward was back to a level seen the beginning of 2016  – when bitcoin prices were 50% lower. In short, this year, we halved the bitcoin reward but doubled the per bitcoin price – to get back to where we started. One can begin to surmise that since the network was still growing strongly at the beginning of the year, a reversion to the economics of that time would not be problematic for miners.”

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