Bitcoin halving

Discover everything you need to know about 2020’s bitcoin (BTC) halving – including what it was, why it happened and how you can still trade it.

What is a bitcoin halving?

A bitcoin halving is when the reward for mining new blocks is halved, meaning miners receive 50% fewer BTC for verifying transactions. Bitcoin halvings will occur once every 210,000 blocks – roughly every four years – until the maximum supply of 21 million bitcoins has been released.

Bitcoin halvings are important events for traders because they reduce the number of new bitcoins being generated by the network. This limits the supply of new coins, so prices could rise if demand remains strong. While this has happened in the months before and after previous halvings – causing bitcoin’s price to appreciate rapidly – the circumstances surrounding each halving are different and demand for bitcoin can fluctuate wildly.

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Bitcoin halving 2020

The most recent bitcoin halving occurred on 11 May 2020, causing the block reward to fall from 12.5 to 6.25 bitcoins. Many commentators expect bitcoin’s price to be volatile over the next few months as the network adjusts to the change in block reward.

Bitcoin halvings: key dates

Event Date Block number Block reward (BTC) Total mined between events (BTC)
Bitcoin launches 3 January 2009 0 50 10,500,000
Halving 1 28 November 2012 210,000 25 5,250,000
Halving 2 9 July 2016 420,000 12.5 2,625,000
Halving 3 11 May 2020 630,000 6.25 1,312,500
Halving 4 Expected 2024 840,000 3.125 656,250
Halving 5 Expected 2028 1,050,000 1.5625 328,125

This list is not exhaustive. Bitcoin halvings will occur every 210,000 blocks until around 2140, when all 21 million coins will have been mined.

Our analysis on the bitcoin halving

By Josh Mahony on 12 May 2020

Bitcoin underwent a halving event on 11 May, with the rewards for mining now 50% lower as a result. This tightening supply should provide a bullish scenario for the asset over time. Looking back at previous halving events, we can see that the 12-18 months either side of the event have typically seen substantial gains for this cryptocurrency.

This occasion has been no different given the 181% upside we have seen since the $3126 low formed in December 2018. Looking at the price action over the past 17 months, the upside may seem somewhat underwhelming.

This can be attributed to a number of things. Firstly, the log nature of the chart means that historical comparisons can be difficult. The $5639 rise seen in this pre-halving phase completely overshadows the $463.00 (2015/16) and $10.58 (2012) gains seen in the past two such periods.

From a percentage-perspective, it certainly is lower than those other two occasions, with the 180% rise falling short of the 277% and 531% upside seen before. Nevertheless, the upside we are likely to see within each phase is expected to normalise as the price of bitcoin increases.

Looking from a historical perspective, the strongest period of upside has come post-halving, with the two previous occasions bringing huge 3031% (2017) and 9780% (2013) gains. That points towards another potential period of substantial upside in the 12-17 months ahead. However, perhaps expectations of a rise anywhere near the 3031%-9780% levels seen previously seem somewhat lofty.

The pre-halving rate of growth went from 531% to 277% to 181%, and the post-halving period could bring substantial given the previous 9780% and 3031% moves. From this perspective, a 1000% rise from here does not seem so crazy.

What we can see is that the consolidation evident over the past ten months could soon be over, and that is likely to bring a sharp surge for Bitcoin prices despite claims that the inability to continue surging over the weekend and yesterday could mean the recent bull run is over.

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How will the bitcoin halving impact BTC’s price?

The bitcoin market is likely still responding to 2020’s halving. The cryptocurrency doubled in price in the eight weeks ahead of the event, but lost around 15% of its value in the three days before it occurred – likely because long-term holders cashed out.

Many commentators believe that bitcoin’s price will rise in the months to come, in line with the pattern seen following previous halvings, as a result of the reduction in the supply of new tokens. However, any price rise will depend on how demand shapes up. This is by no means certain to increase – or even remain static – as the market has matured significantly since the last halving in 2016, and there are now many more cryptocurrencies competing for users.

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How to trade 2020’s bitcoin halving

  1. Create an IG account. Practise in a risk-free environment with a demo account, or open a live account if you’re ready to start trading with real money
  2. Decide whether to spread bet or trade CFDs. Both enable you to speculate on rising and falling cryptocurrency prices without taking ownership of the underlying coins
  3. Open the deal ticket for bitcoin. You can choose your position size, and add stops and limits to manage risk
  4. Place your first trade. You’ll benefit from leverage, which enables you to open a position by putting down only a small deposit
  5. Close your position. Profit from a spread bet and you won’t pay any tax, while profits from CFD trades can be offset against losses for tax purposes1

Find out more about the benefits of trading cryptocurrencies with CFDs or spread bets.

How does a bitcoin halving work?

A bitcoin halving works because of the network’s underlying blockchain software, which dictates the rate at which new bitcoins are created. The software requires computers in the network to compete to verify transactions – through a process known as ‘mining’ – and rewards them with a number of new bitcoins when they can prove that the transactions they have selected are valid. Transactions are verified in groups called ‘blocks’ and the network is coded to halve the reward received by miners every 210,000 blocks.

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What happens to miners when the bitcoin reward is halved?

When the block reward is halved, some users may calculate that their mining activity will no longer be profitable due to costs such as electricity and hardware. Some users may stop mining altogether if the price of bitcoin doesn’t rise to compensate, reducing the amount of processing power in the network. Whatever happens, the speed at which blocks are mined shouldn’t be affected as the software automatically adjusts the difficulty of verifying transactions to maintain a steady rate.

What happens when all 21 million bitcoins have been mined?

When the maximum supply of 21 million bitcoins has been mined, users will no longer receive new bitcoins for verifying blocks. However, they will continue to receive transaction fees – contributed by those making payments – as an incentive to verify transactions. It is estimated that the last new bitcoin will be mined in 2140. At this point, the cryptocurrency will become deflationary as coins can be ‘lost’ through user error – for example, by sending coins to an invalid address.

Why does bitcoin halve?

Bitcoin halves due to the design of its software, which was created by a mysterious person or group using the assumed pseudonym ‘Satoshi Nakamoto’. While Satoshi hasn’t explicitly explained the reasons behind halvings, many have speculated that the system was designed to distribute coins more quickly at the beginning to incentivise people to join the network and mine new blocks. Under this theory, block rewards were programmed to halve at regular intervals because the value of each coin rewarded was deemed likely to increase as the network expanded.

One criticism of bitcoin’s design – including halvings and the finite supply of 21 million coins – is that it encourages users to save rather than spend in the hopes that coins will increase in value over time. This may have fuelled boom and bust cycles in the past, with users hoarding coins only to cash out at key levels. Some have also compared bitcoin to a pyramid (Ponzi) scheme for similar reasons, arguing that the system’s design has disproportionately rewarded users who got in early.

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FAQs

How can I trade the bitcoin halving?

The easiest way to trade bitcoin over the course of the halving is with derivatives such as contracts for difference (CFDs) or spread bets, which enable you to speculate on bitcoin price movements without taking ownership of the underlying coins. Both also enable you to manage your risk with stops and are subject to beneficial tax rules in the UK (note: tax rules are subject to change and depend on individual circumstances).

The alternative is buying bitcoins outright through an exchange. If you choose this option, you will need to set up an exchange account and take responsibility for securing your cryptocurrency tokens in a wallet. Any profits would also be subject to tax in the normal way.

Can I make money from the BTC halving?

Yes, it will be possible to make money from the BTC halving by speculating on bitcoin’s price movements in the weeks and months surrounding the event. Contracts for difference and spread bets are popular ways to speculate on bitcoin price movements because they enable you to go long or short.

However, it’s important to remember that all forms of trading carry risk. So, while there will be opportunities for profit, you should never risk more than you can afford to lose. Some providers offer guaranteed stops, which always close your trade at the precise level you specify – ensuring you know the exact amount you're risking on each trade. A premium is payable if a guaranteed stop is triggered.

What will the BTC price be after the halving?

Many have speculated that bitcoin’s price will rise in the weeks before and after the event. This is in part because the halving is expected to draw increased attention to bitcoin, but also because it will reduce the supply of new coins entering circulation. However, any price rise will depend on how demand for bitcoin shapes up over the course of the halving. This is by no means guaranteed to increase – or even remain steady – as it has fluctuated wildly in the past.

How do I reduce the risks of trading bitcoin?

You can reduce some of the risks associated with trading bitcoin by speculating on the cryptocurrency’s price with CFDs or spread bets. Both are derivatives, which enable you to take advantage of bitcoin’s price movements without taking ownership of the underlying coins – meaning you do not take on the risks associated with an exchange account or wallet.

Certain providers also enable you to use guaranteed stops with CFDs and spread bets. Guaranteed stops always close your trade at the exact level you specify, so will cap your losses in the event of adverse price movements – even if there are liquidity problems in the underlying market. A premium is payable if a guaranteed stop is triggered.

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

2 Based on revenue excluding FX (published financial statements, June 2020).

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.