The Grayscale Bitcoin Trust (OTC: GBTC) was down more than 10% after bitcoin underwent a landmark event known as a “halving.”
At 3:23 p.m. Eastern on Monday, bitcoin cut in half the amount of bitcoins that are rewarded to cryptocurrency miners. These halving events are scheduled to take place roughly every four years as a way to guard against inflation.
The total number of bitcoins that will ever be available is 21 million, but the rewards bitcoin miners receive for their efforts will repeatedly halve over the years as the world’s supply approaches that cap. Monday’s halving is the third such event in bitcoin’s history.
Cryptocurrency Market Reaction
Previous halvings have resulted in mixed subsequent trading action in bitcoin.
Bitcoin prices were up 7% in the month following the first halving in 2012, but down 10% in the month following the second halving in 2016.
Bitcoin has had a big year so far in 2020. The price of bitcoin is up 23.1% so far this year to near $9,000.
While it’s unclear what kind of impact the halving will have on bitcoin prices, it will certainly make life more difficult for bitcoin miners given that it will cut their earnings power in half.
Bitcoin miners use specialized high-power computing rigs to solve complex math problems that are used to validate bitcoin transactions. The first miner to solve those problems gets paid in bitcoins. The payment dropped Monday from 12.5 BTC to 6.25 BTC.
Bitcoin Wallet Growth On The Rise
DataTrek Research co-founder Nicholas Colas recently observed that the 2.3% bitcoin wallet growth in April was the highest growth in more than six months. Colas said there are two potential explanations for the rise in wallet growth and the spike in Google search volume related to bitcoin in mid-March.
“Either ... people are getting excited about bitcoin’s ‘halving,’ when its algorithm starts reducing new issuance by half ... or ... as with our recent observation about bored, lock-downed gamblers and sport betters drifting off to day trade stocks, some percentage have also found their way into crypto currencies,” he said.
Despite bitcoin bulls’ claims that bitcoin is a flight-to-safety investment, bitcoin prices plummeted 30% from Feb. 23 to March 23, the period in which the S&P 500 dropped 32.9%.
The Grayscale Bitcoin Trust was down 10.13% at $10.29 at the time of publication Monday. Bitcoin was trading down slightly at $8,680.42.
Bitcoin will remain an extremely volatile, extremely high-risk investment even after the halving. Bitcoin has been a huge long-term winner for investors up to this point, but skeptics like Warren Buffett have repeatedly pointed out that cryptocurrencies like bitcoin don’t produce anything and have no intrinsic value.
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