What do you need to know about it?
How can you benefit from the event?

Bitcoin (BTC) is the largest cryptocurrency with a current market cap of $170.5 billion. The decentralized digital currency was invented back in 2008 and started operations in 2009. It is used for making peer-to-peer transactions without the need for intermediaries. In fact, the system uses cryptography to verify the transactions, which are then being recorded in a public distributed ledger and a technology called blockchain.

Historically speaking, Bitcoin has been a huge success and has been making great short-term movements that traders especially have been able to benefit from and maximize their profitability by taking advantage of that great volatility on the leading cryptocurrency’s price.

Bitcoin’s largest success was back in 2017 when the price bounced from the $960 lows in the beginning of the year to reach the $19,500 highs a year later, representing a 1931% return over that 12 months period. Due to that huge appreciation on the price during that year period back then, lots of analysts started predicting that the leading cryptocurrency will reach $50K by the end of 2018, while some had even bigger expectations. Yet, the price had been extremely overpriced back then and it was only logical to expect lots of profit-taking interest among those traders and investors who had already generated high profits and were already interested in closing their positions and cashing in the earnings they had made. Thus, that led to a massive sell-off that sent the price towards the $3100 lows in the end of 2018.

We have been following and analyzing BTC’s performance for a long time now and have managed to make high profits on a few different profit-taking corrections, which have been giving us great entry levels for our buy positions and we have been benefiting from the high volatility on the price over that period of time.

Since February this year we have seen quite a high of volatility on BTC. In fact, the price had been under a huge selling pressure between the 13th of February and the 13th of March where it dropped from the $10,500 highs to reach the $3,850 lows. Yet, the price started bottoming out at those low levels back in March and has already gone towards the current $9,910 at the time of writing.

Why has the price appreciated so much over the past 6-7 weeks?

Well, this year is special for Bitcoin because of the halving that would take place on the 12th of May. Now, let’s explain what it means and why is it so important.

Much of Bitcoin’s reputation is based on a strictly regulated rate of supply growth, which mathematically limits its total supply to 21 million bitcoins.

In fact, around 18.32 million Bitcoins have been mined up to date, representing 87% of the total supply. Mining is the process of using computing processing power in order to solve complicated math problems on the Bitcoin network in order to produce a new bitcoin. By solving computational math problems, bitcoin miners make the Bitcoin payment network secure and trustworthy, by verifying its transaction information. Therefore, miners receive rewards for successfully completing a block that supplies a certain amount of new bitcoins.

The Bitcoin supply is so predictably scarce because of the hard-coded event, famous as “halving”. The halving takes place every 210,000 blocks, or in other words every 4 years, which reduces Bitcoin’s block supply by 50%.
The halving that would take place on the 12th of May would be the third in the network’s existence and will occur at block 630,000. The upcoming halving next week will reduce the block supply, included in the coin’s transaction, from 12.5 bitcoins per block to 6.25 bitcoins per block, decreasing its supply growth from 3.72% to 1.79%. In other words, the process of mining new bitcoins will become even more complicated and harder to solve.

Historically speaking, there have been two prior bitcoin halvings up until now – the first one took place on the 28th of November 2012, followed by the next one on the 8th of July 2016.

What effect does halving have on the price?

The first Bitcoin halving in the end of 2012 occurred at block 210,000, which reduced the block subsidy from 50 bitcoins to 25 bitcoins.

Let’s have a look at the chart and see what was the effect on the price and how does the halving impact the overall performance of the cryptocurrency.

Chart: BTCUSD – Nov. 2011 – Dec. 2013

The chart above shows the price reaction on Bitcoin 1 year prior to the halving and the performance of the leading cryptocurrency after the event.

BTC reached its bottom at $2.29 on the 21st of November 2011 exactly a year before the halving took place. Ever since then, we can see a massive bullish trend that sent the price towards $12.56 on halving day (28th of November 2012), representing a 448% increase in only 12 months. Yet, this was only the beginning – the bullish reaction that occurred a year after the halving was even more impressive – the price reached the $1,151 record-high back then on the 4th of December 2013 which was an increase of 50,162% in only 2 years!

Now, let’s have a look at the second halving that occurred on July 9, 2016 at block 420,000, decreasing the block supply from 25 bitcoins to the current 12.5 bitcoins. The mining supply decreased from 3,600 bitcoins a day to the current rate of 1,800 bitcoins per day.

The time period between the first and the second halving was only 1,316 days or 3.6 years.

Bitcoin experienced a second bull run, this time beginning nine months prior to the halving.

Chart: BTCUSD – Sep.2015 – Dec.2017

The chart above shows the performance of BTC before and after the 2nd halving that took place on the 8th of July 2016. In fact, we can see the substantial bullish effect on the price before and after the event, similar to the first halving back in 2012.

Bitcoin was trading at only $213 on the 24th of August 2015 to reach the $652 on the halving day, representing a 206% increase over that period. Yet, the bullish effect after the halving was a lot more substantial – the price reached its all-time high at $19,500 on the 16th of December 2017, only 1.5 years after the second halving, representing a 2891% return in less than 2.5 years.

Overall, supply and demand are among the most important fundamental factors that have a positive/negative impact on the performance of Bitcoin and other cryptocurrencies.

As we have just seen above, the halving event has been reducing the supply of bitcoins and has been making it harder for miners to receive bitcoins when solving complex mathematical formulas and decisions. That in turn has been extremely favourable for the price as when supply decreases and demand increases the price immediately spikes up. In other words, as the total supply of bitcoins is only 21 million, it would become even harder to mine those remaining coins, making the number of bitcoins scarce and that in turn should have a further bullish impact on the price in the future.

Chart: BTCUSD 2019-2020

By looking at the current situation, we can see that the BTC started bottoming out back in January 2019 when the price was trading at the $3,300 lows to reach the $14,000 highs in June 2019, 11 months prior to the 3rd halving that would take place on the 12th of May 2020. Since then we have seen a correction down towards the $6,550 lows in December 2019, followed by another bullish rally towards the $10,500 mark in February 2020. In fact, BTC faced quite a lot of selling pressure between the 18th of February and the 18th of March where the price dropped from the $10,500 to reach the $3,850 lows. However, this was mainly based on the major sell-off caused by the coronavirus and the huge market correction all across the board. We have been following the BTC performance very closely and should say that since the 18th of March there has been lots of buying pressure that has already sent the price towards the current $9,910 representing a 157% return in 1.5 months prior to the halving taking place next week. In other words, it is clear that cryptocurrency investors have taken into account the huge bullish effect that halving has historically had on the BTC and have been aggressively buying BTC ahead of the 3rd halving.

Overall, by analyzing the overall price action of BTC before and after the halvings that have occurred in the past, we believe the current Bitcoin price is giving us a great opportunity to buy at around the current levels at $9,900 and hold the cryptocurrency in the portfolio for the middle to longer term. In other words, the current price at $9,900 is still trading at only half the all-time high reached back in December 2017 where the BTC hit the record of $19,500. Therefore, we will be buying BTC at the current levels at around $9,900 and will hold the position for the longer run, expecting the 3rd halving and the post bullish effect of it to further boost the price in the next few months, which is likely to send the BTC towards the $13,000-$14,000 mark where we will be cashing half of our profits, followed by our longer-term profit-taking target at $18,000 where we will be fully selling our holdings before the price reaches the record high at $19,500 where lots of take-profit interest is expected to take place, which could lead to a correction to the downside.

We at Dow Experts enjoy analyzing the market and helping our followers maximize their profitability by following our trading and investing ideas, which are always supported by our rational investment approach.

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