Bitcoin goes through the “most brutal” halving ever recorded; here’s why

One of the most anticipated events of 2020 within the cryptocurrency industry has taken place. Bitcoin underwent its third halving after AntPool successfully found block 630,000.

Now, the rate of issuance of the flagship cryptocurrency has dropped by 50 percent. Consequently, miners will be rewarded 6.25 BTC per block for the next four years, which could have serious implications on the entire network.

Miners flee the Bitcoin network to prevent losses

The massive supply shock that Bitcoin went through is the “most brutal” in its short history, according to Charles Edwards, digital asset manager at Capriole Investments. The analyst maintains that miners’ production cost is set to double to $14,000, which is more than 60 percent above the current price levels.

Edwards expects that miners will soon capitulate, subsequently, pushing BTC’s price down.

Edwards said:

“In the last halving, price was just 10 percent below production cost, and price and hash rate collapsed by 20%. Without FOMO now, expect a big miner capitulation of more than 30%.”

Indeed, the CEO of Blockware Solutions, Matt D’Souza, explained that after the recent halving there is going to be “healthy cleanse of the network.” Since the Antminer S9, mid-generation Innosilicon and mid-generation Canaan miners will no longer be profitable, all mining pools will be forced to deploy more efficient equipment over the coming months.

This is the reason why there has been a considerable exodus of mining pools that have been shutting off their units because they are already losing money. Alejandro De La Torre, vice president of Poolin, affirmed that unprofitable miners account for 15 to 30 percent of the entire Bitcoin hash rate.

De La Torre added:

“All older machines will no longer be profitable unless they are mining on nearly free electricity or if the price shoots up by 2x or more.”

Price implications after the recent halving

A 200 percent price increase just to keep miners afloat seems quite speculative. But for Jake Yocom-Piatt, project lead at Decred, it is very likely to happen since these key industry players will do anything to keep the same revenues.

Yocom-Piatt affirmed:

“Miners’ costs are effectively fixed, so to maintain the same profit margins, they are incentivized to double the price at which they sell their Bitcoin. I expect this supply shock will drive the Bitcoin price up by moving offers from miners up substantially.”

Given the current state of commotion around the global economies, it is uncertain whether or not the recent halving will be the catalyst for the next Bitcoin bull run. However, if scarcity indeed drives price as Plan B’s stock-to-flow ratio indicates, then Bitcoin’s market value could soon increase by 10x.

Now, it is just a matter of time to see if Bitcoin will continue to follow the stock-to-flow model and meet the upside potential it presents.

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