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Bitcoin 4.0 is Here: What to Expect After the Third Halving

Earlier today, Bitcoin has transitioned to its fourth cycle after the third halving occurred yesterday. The block rewards for miners are now cut in half and reduced from 12.5 BTC to 6.25 BTC per block. At the moment of halving, Bitcoin was being traded at $8,500 with 67% cryptocurrency market dominance.

Since the genesis block was mined in 2009, Bitcoin has now gone through three halving events, which happens every 210,000 blocks or approximately four years. Following the rhythm, the block rewards are constantly being reduced by half until the last Bitcoin is mined. With the maximum supply of 21 million BTCs, it is estimated that the last coin will be found in 2140. The last block reward should be equivalent to 1 Satoshi, or 0.00000001 BTC, the smallest unit of Bitcoin.

Previous halving events were followed by bull-runs which led Bitcoin prices to new all-time-highs (ATHs). However, this does not mean that Bitcoin will suddenly take off and start mooning, as according to historical data, Bitcoin takes an estimated 360 – 500 days after a halving to reach another ATH. This creates a four-year cycle where Bitcoin goes through multiple phases including, bull market, bear market, accumulation, expansion, and reaccumulation.

Bitcoin is now stronger than ever

The easiest way to measure the adoption of Bitcoin is to look at wallet address numbers. Between the second and third halvings, wallets with 0 to 0.1 BTC have seen significant growth. According to data from Glassnode, an on-chain data analysis firm, it is suggested that the number of addresses containing ≥0.01 BTC has increased by 204% during the past four years. While the number of addresses holding between 0.01 to 0.1 BTC also saw a substantial increase of 142%.

Image Source: Glassnode’s Twitter

The hash rate of the Bitcoin network also increased more than 8,700% since 2016 and continues to break the new ATH on a regular basis led to the halving.

What will happen next?

As mentioned above, it will take some time for the price of Bitcoin to appreciate the dwindling new supply and boost in scarcity. Some investors are even expecting a post-halving dump as speculators will begin to offload the Bitcoin bought before the event in hopes that prices will rise.

However, in the miners’ perspective, things are laid out much clearer since the block reward reduction has a direct effect on mining costs. Bitcoin hash rate is expected to drop by 30% in the following weeks as old mining machines are now rendered obsolete.

This raises concerns about the centralization of computing power, as the only profitable miners come from large mining farms which are mostly located in China. According to Cambridge University Center for Alternative Finance’s Bitcoin Mining Tracker, more than 65% of the hash power are in the Chinese regions of Xinjiang and Sichuan. With the abundance of cheap electricity and the presence of Bitmain, the biggest mining chip manufacturer, miners head to the east in search of better profitability. 

Unlike central banks, people can freely open their own nodes and start their own mining pools, but in these circumstances, whether we are going to end up replacing one centralized system with another is still remains to be seen.

You may also want to read: Binance’s CZ on Crypto Market: “We are Witnessing a Perfect Storm”

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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