Halving is an event where the number of rewards for mining a block and adding it to the blockchain is halved. A miner or mining pool receives 12.5 BTC for each successful generation in the Bitcoin distributed network, but this amount will be reduced to 6.25 BTC at the beginning of May.
The previous halving — the second in Bitcoin’s history — took place on 9 July 2016. The reward for each block was then reduced from 25 BTC to 12.5 BTC. This procedure is essential as it reduces the speed at which the cryptocurrency, which is limited to 21 million coins, is issued.
In March 2020, miners earned a grand total of $380 million on mined bitcoins. This figure may seem high, but it is 25% less than their February earnings. At the same time, they earned $8 million on commissions for transaction validation. It works out that 98% of earnings consist precisely of rewards for blocks, not commissions.
Analysts who study the behaviour of network participants concluded that miners were selling coins immediately after mining them. The last third of March turned out to be a ‘big sale’ for bitcoin, when many people, including miners, got rid of their cryptocurrency reserves en masse. At that time, the crypto market went through the same collapse as other markets, and no one knew how soon prices would recover.
Statistics for 25 March showed that miners sold 2788 BTC, although they mined only 1588 BTC. This led to a temporary downtrend in the bitcoin price, which sank from 6716 to 5922 USD (26–29 March), but an uptrend began as early as 30 March. When it went further and overcame the psychological threshold of 7000 USD, the market proved that it can withstand a large influx of sellers. Optimism caught on and people began to accumulate coins once again, since a halving awaited them.
Whales’ and holders’ preparations
Researchers at Glassnode reported an increase in the number of ‘weighty’ wallets, that is, bitcoin addresses with a balance exceeding 1000 BTC. This parameter is now being used to determine who can be conditionally termed ‘whales.’ Some of these major holders became more active during the crisis. Some ‘whales’ threw large quantities of coins onto the market before Black Thursday.
The majority of whales still continue to hold onto their bitcoins and fill up their wallets at any opportunity. The number of thrifty holders began to grow in January 2020. Judging by 1840 addresses, the figure even reached a two-year high in March. Specialists consider this to be a good sign that indicates major investors’ confidence that the BTC price will go up.
Analysts noted similar behaviour by whales before the 2016 halving. At that time, the number of holders of more than 1000 coins increased between January and July. Whales began to sell their bitcoins only after the reward was halved.
Small cryptocurrency investors are also accumulating reserves. The number of wallets that contain a balance of at least one whole bitcoin exceeded the historical record twice in April 2020 alone:
on 8 April, the network had 802,567 addresses with more than 1 BTC;
on 10 April, it already had 802,715 addresses with more than 1 BTC.
Litecoin creator Charlie Lee said that his coin’s price reached its 2019 high before its halving took place. The record for the year was the 142 USD mark on 22 June. On 5 August, when the halving occurred, the LTC price was 97 USD. After that, the price began to decline, and by 31 August it dipped to 65 USD. By the end of 2019, it had plummeted to 42 USD.
Litecoin investors, just like those buying up bitcoins, counted on a sharp increase in the coin’s price immediately after the halving. However, they instead had to arrange a sale when they realised that portfolios were losing their value as the ‘digital silver’ was cheapening. Charlie Lee believes Bitcoin could go down the same path. He is not positive, however — other factors may become decisive.
MinerUpdate journalist John Lee Quigley believes that the Bitcoin halving will increase pressure on miners, which means that large centres will maintain control of the distributed network. Miners already make very little — their earnings are virtually at the break-even point, that is, paying for electricity and Internet and recovering expenses for ASICs. The halving of the reward will drive home miners and small pools to start selling their devices.
John Lee Quigley said that miners’ profitability level is now at its lowest point, given the statistics for the last two years. It is difficult to say how this figure will change after the May halving.