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[MCS Bitcoin Halving Series #1] Bitcoin halving is just around the corner, and it’s time to turn your eyes from spot to derivatives.

4 months ago

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Bitcoin halving is the most trendy keyword in these days. In the last month, Google Trend showed a chart with the skyrocketed graph for searching the keyword “Bitcoin Halving” from Google.

             

What Is Bitcoin Halving?

Satoshi Nakamoto, the developer of Bitcoin, set the total supply of Bitcoin to 21 million to prevent inflation. Every time a Bitcoin block is created/mined, the Bitcoin network provides a certain amount of Bitcoin as a mining* reward to the miners** who have contributed to the block creation. This mining reward is cut in half approximately every four years, and this bifurcation is called 'Bitcoin Halving’.

* Mining: Contributing to a blockchain network to create blocks to receive rewards
** Miners: All participants who try to mine Bitcoin blocks.

When Bitcoin first appeared, the reward for miners was 50 Bitcoins, but after two halvings in 2012 and 2016, the mining reward was cut down to 12.5 Bitcoins. Soon after the upcoming third halving, mining rewards will be reduced to 6.25 Bitcoins. The halving is effective in maintaining the value of Bitcoin by mechanically dropping the supply, which is in contrast to the 'quantitative easing' used by many central banks to increase liquidity through the purchase of government bonds.

When Is Bitcoin Halving?

Many people misunderstand that the Bitcoin halving is scheduled to take place on a specific date; however, the date is not fixed. Bitcoin halving takes place when a specific block is mined. The third halving will be at a height of 630,000 blocks, and as of 09:35 am on May 7, 2020, Bitcoin block height reached 629,126 blocks. Considering that a block is created every 10 minutes, the 630,000th block will be created on approximately May 12.

Why Do People Have A Great Interest In The Bitcoin Halving?

Bitcoin traders are paying great attention to this halving in anticipation of the 'big price fluctuation' that will come after the halving. A report, <Bitcoin Maturation Leap>, by Bloomberg stated that "Bitcoin is preparing a monumental rally similar to the rally in 2017. Bitcoin is expected to benefit from the financial market turmoil." On the other hand, many skeptics say the rally of the price surge from the halving has ended, and the price will drop significantly. Only the time can tell which side is correct after the halving, but optimists and skeptics commonly predict 'big price volatility'.

The First And The Second Halving

In November 2012, the bitcoin price at the first halving was around $15. After the halving, the price began to surge drawing a sharp upward curve, and by the end of 2013, Bitcoin broke the $1,000 mark. Also, from $640 at around the second halving in July 2016, the Bitcoin market continued its bull run to approximately $20,000 at the end of 2017.

What If You Invested In Derivatives in 2016? - A Secret To 100x Profit

Let's say, at the halving in 2016, fictional characters Alice and Bob both bought one Bitcoin for $600.

Alice used the leverage x100 on a derivative exchange to buy 60,000 contracts, and Bob decided to keep one bitcoin on a spot exchange.

The below table is the comparison of the returns if Alice and Bob decided to sell Bitcoin when it reached $10,000.

       

             

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Published 4 months ago