Introduction
The bitcoin halving is a major media hype event and at the same time it is non-event from a price point of view. This means it has almost no affect on the price of bitcoin days or weeks after it happens. The spike in price(from the 1st two halvings) happens around 9 months after.
Bitcoin has a fixed supply of 21 million. This means that there will be only 21 million bitcoins mined (actually a bit lower than that)...ever. This means that bitcoin is by nature deflationary as apposed to our current inflationary fiat money(Money with no intrinsic value). A deflationary currency will buy more and goods and services as time goes on. The opposite is true for an inflationary currency.
We experience inflation in our fiat currencies because the supply is forever being inflated. This means we are loosing our purchasing power when we hold fiat currency.
Disclaimer
I am not a financial advisor and this is not financial advice. I take no responsibility on how you interpret the below information.
M2 money supply
"M2 is a key economic indicator used to forecast inflation." - wikipedia.org
A definition from www.investopedia.com says "M2 is a measure of the money supply that includes cash, checking deposits, and easily convertible near money. "
Below we have a chart of Namibia's M2 money supply
Namibia is not the only country that is expanding its money the supply. Almost all(if not all) countries are following the same pattern. Some with steeper curves.
This is in complete contrast to bitcoin. Have a look at bitcoin's "monetary policy".
Controlled supply of bitcoin
The supply plateaus near 21 million bitcoins which is the complete opposite of an inflationary currency.
Bitcoin halving
Around every 4 years or 210,000 blocks bitcoin incurs a halving event. This means the block reward gets halved. Block rewards started at 50 bitcoins. From block 210,000 the reward was halved to 25 bitcoins per block.
Halving events occurred as followed:
Start date End date Mining reward in BTC
03-Jan-2009 27-Nov-2012 50
28-Nov-2012 08-Jul-2016 25
09-Jul-2016 10-May-2020 12.5
11-May-2020 Year 2024 6.25
The above rules are built into the system and any miner who wishes to participate needs to accept these rules before joining.
Bitcoin price at halving and after halving
You can check out my notebook on kaggle. Or you can download the dataset and play with it yourself. I wanted to compare the price of bitcoin on the day of the halving vs the price 12 months later.
First halving
Price at halving U$ 12.40
Price 12 months after halving U$ 1,206.90
Increase in price U$ 1,194.50
The price increased 96.33 times
Second halving
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Price at halving U$ 651.80
Price 12 months after halving U$ 4,635.60
Difference in price U$ 3,983.80
The price increased 6.11 times
Third halving
Price at halving U$ 8,579.80
Current price 4 months after halving U$ 10,277.90
Difference in price U$ 1,698.10
The price increased 0.2 times
The price of U$10,277.90 is at 15 September 2020 which is the last date of the dataset. The price as the time of this post (1 October 2020) is U$10,827.41.
Other third halving analysis
One of the most popular models on bitcoin is Plan B's famous article, Modeling Bitcoin Value with Scarcity. His stock to flow model predicted a price of U$55,000 after May 2020. Below is his stock to flow from recent posts on twitter.
The above shows a bitcoin price of above U$100,000 before end 2020! Will this play out? Nobody knows. The S2F model has received lots of critism and a you'll find lots of those articles with a simple Google search. Plan B said himself that "All models are wrong, but some are useful".
Conclusion
The more fiat money is created the less value our Namibian dollar has. Inflation is a hidden tax we all pay for living in a world that operates in fiat currency.
The bitcoin halving ensures that the issuance of bitcoins will not exceed 21 million. This may contribute to bitcoin retaining its purchasing power as time goes by.
