The concept of the Bitcoin Halving occurs when the value of one bitcoin goes down to around 0.5 cents. It has been described as “the perfect storm” because it is seen to be almost impossible to predict exactly how large the price will drop. In this article, we will go through the definition and procedure of the event. We will also look at how the market reacted to the event and whether it was a good or bad move.
The Bitcoin Halving takes place when the value of one bitcoin drops by more than 50%. It can happen anytime between two months and five years but it usually happens about every four months. To this date, the event has never been predicted.
The definition and procedure of the event are somewhat subjective. Most Bitcoin market analysts believe that it is a very good thing because it prevents speculation from taking over the market and causing the price to rise rather than fall.
As per the definition, there is no actual limit on the number of bitcoins that can be created. However, the algorithm determines how many new bitcoins can be created every 10 minutes. As more bitcoins are created, they become worth less so this prevents speculation in the market.
To cause the halving, there must be a sudden decline in the demand for bitcoins which is at a small percentage compared to the supply. A lot of factors determine the drop in the demand. It can happen due to the introduction of a major innovation, the introduction of a new use for bitcoins, etc.
In reality, the event was actually observed because the rate of creation of bitcoins is constantly going up to create a scarcity in the market. Therefore, prices were constantly dropping.
There is a big negative effect on the market ofspeculators trying to predict what will happen after the event. A lot of people go out of business during these times, as their stocks and investments are worth more than the amount they were anticipating. Furthermore, those who were in profit lose a lot of money because they didn’t get in early enough.
One critical mistake that traders make is to place their bets based on predictions of the event. They consider that if the value of bitcoins drops after the event, the next halving will be much lower and thus when the event happens they can profit. However, the Bitcoin Halving did not happen in most cases, so predicting its future trends is simply foolish.