On the 3rd of May 2020, the third Bitcoin halving took place. This halving means that miners will now receive only 50% of the Bitcoins as a block reward, earning 6.25 BTC after the halving instead of 12.5 BTC.
Since the block reward will be halved, the number of Bitcoins entering circulation will be halved too, this means that:
- 6.25 Bitcoins will be created every 10 minutes for the next 4 years before being halved again.
- 1,312,500 Bitcoins will be produced and after the next halving (2024) only 656,250 Bitcoins will be generated until the 5th Bitcoin Halving in 2028.
This reduced production of new Bitcoins brings increased scarcity to the cryptocurrency which is already scarce due to:
- A limited maximum supply of 21 million Bitcoins
- 20% of Bitcoins being lost forever due to clumsiness by some of the earliest investors.
As we all know, increased scarcity, coupled with high demand always increases the market value of an asset.
Whilst many people have their opinions on how Bitcoins market value will be affected, a mathematical prediction model paints a bullish picture of where Bitcoins price could be in the time following the halving (2020 & 2021 - 2024).
Statistical model predicts a fair value of $55,000 to $100,000 for Bitcoin with 95% accuracy
In March 2019, an institutional investor based in Europe who goes by the name "PlanB", released a popular article on Medium titled “Modeling Bitcoin’s Value with Scarcity.”
The article contained the image below, which shows Bitcoins total market value over time, modelled using a linear regression.
The linear regression model predicts a $55,000 to $100,000 price for Bitcoin. This is roughly 8x-15x from it's price of $6,800 before the halving in May 2020.
Bitcoin's price has already gone past the $55,000 prediction, reaching $63,000 in May 2021 and $68,000 in November of the same year.
The funny thing is, even if Bitcoin did reach $100,000, that would mean that Bitcoins value didn't even grow as much as it did after the previous halvings.
For example, the first Bitcoin halving in 2012 saw a 20x increase in value and the second halving in 2016 saw a 33x increase in price.
This means that it's possible for Bitcoin to eventually surpass the $100k price tag predicted by this statistical model.
Scarcity Increases Bitcoin's Market Value
This model proves what we all already know, that there's a significant relationship between Bitcoins scarcity (stock-to-flow ratio of SF) and its market value.
As you can see in the lower right corner of the model, this relationship (SF + Market Value) has an R Squared (R2) of 95% (0.947328), showing a very high correlation between the two data points.
To help you better understand the above model, the following data points are represented as follows:
- Gold is represented using a large yellow circle
- Silver is represented using a large grey circle
- Bitcoin is represented by the small, rainbow coloured circles which encircle the black power regression line.
- The color of the Bitcoin dots are influenced by the "months until halving", which is indicted on the right hand side of the model.
Okay, so Bitcoin's value is driven by scarcity, we all knew that right? How is this information important?
Well, as explained earlier, the Bitcoin halving reduces the amount of Bitcoins generated by 50%. This means 50% less Bitcoins will enter circulation every 10 minutes, increasing its scarcity.
This increased scarcity will lead to higher market value according to the statistical model and price movements since previous halvings.
Bitcoin has already broken past the lower price prediction of $55,000 multiple times in 2021, and we could a further increases in Bitcoins price going forward.
Now lets go back to the linear regression model.
As you can see, as we get closer to the halving (referenced by the small dots shifting through green and blue) the market value of Bitcoin hovers between the $55,000 and $100,000 mark.
However this doesn't mean that Bitcoin will magically shoot up to $100k once the halving occurs.
In fact by looking at historical data we can see that it actually takes much longer for Bitcoins value to grow exponentially after a halving:
- After the 2012 Bitcoin Halving, it took a year for Bitcoin to go from $11 to $1,100 in 2013.
- After the 2016 Bitcoin Halving, it took a year for Bitcoin to go from $600 to $20,000 in 2017.
- After the 2020 Bitcoin Halving, it took a year for Bitcoin to go from $6,800 to $68,000 in 2021.
If Bitcoin does reach $100,000, it could be a slow climb towards the price target based on historical evidence. Let's look at previous Bitcoin halvings and the effects on it's price.
The First Bitcoin Halving in 2012
The first Bitcoin halving occurred on November 28th 2012 when one BTC was worth around $11. A year later, bitcoins price surged to a mouth watering $1,100 in 2013, a price never before seen with Bitcoin.
It had only been one year since the halving and Bitcoin had grown 100x.
Bitcoins price eventually fell to around $220 and it remained below $1,000 for the next few years. Even at its bottom Bitcoin was still up 20x from it’s price before the halving.
The Second Bitcoin Halving in 2016
The second Bitcoin halving occurred during July 2016. Bitcoin maintained a price of around $600–$700 before rising to $20,000 during the 2017 bull market.
Bitcoin experienced a growth of over 33x from its price before the second halving and over 1,818x from its price before the first halving.
Bitcoin's recovery on the road to the 2020 halving
The chart below shows how the value of Bitcoin has grown after every halving as well as the number of Bitcoins that will be generated during each 4 year period between the halvings.
The chart above is courtesy of @ChartsBtc on Twitter.
Bitcoin reached a price point of $10,000 on June 1st 2020, the first time since February 2020 and after a slump to $4,656 in March 16th 2020.
This lines up with the prediction in the chart above for Bitcoin hitting $10,000.
If you look at the green lines on the chart, you'll see that they reach into a range of $70,000 to over $100,000 when going into the 2020 - 2024 category.
What to expect from the Third Bitcoin Halving in 2020 according to Experts
Lets look at what some top experts have to say about how the halving will affect Bitcoin.
Kraken CEO, Jesse Powell seems to be optimistic about Bitcoin reaching $100k after the halving. He believes Bitcoin will reach a price point of $100k or $1m.
When I hear people talking about a bitcoin "correction" I'm thinking $100k, maybe $1m. That's what's correct.
Anthony “Pomp” Pompliano, an investor based in the USA, was also bullish with a $100k Bitcoin price prediction by the end of 2021.
With a fixed supply asset, as demand increases, we continue to see price appreciation. One of the largest drivers of that demand or increase in scarcity is the halving in May 2020 which I think is going to be a big moment and is about 18-19 months from the start of 2021.
Anthony Pompliano continued to say:
So I think that will be a big moment there and something that we see in the past that has caused a large appreciation in price.
Pantera Capital Founder and CEO Dan Morehead seems very bullish, in a letter to investors in April, he told them he expected a price target of half a million dollars.
“If history were to repeat itself, Bitcoin would peak in August 2021 — at $533,431.”
The overall sentiments appear to bullish but again they all seem to agree that Bitcoins price could grow gradually, like we have seen with the previous halving's.
Final thoughts
Personally, I feel that Bitcoins market value will follow historical trends and grow to a new high after about a year. The increased scarcity, increased awareness and adoption, coupled with previous halving occurrences make me positive about this.
Secondly, the linear regression model seems to mirror the expectations of various experts, despite actually being more conservative with a $55k to $100k outcome.
I suggest you buckle up and hang on, the next few years will be very interesting.
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