pitcture of building with Nasdaq: Bitcoin halving 2020

Bitcoin halving in 2020

The so-called Bitcoin halving will take place in May 2020. Historically, the Bitcoin halving is an event that repeats itself every four years and serves as the starting point for a new bull market. Here we will explain in a little more detail what this means.

Do you want to get to know Bitcoin a bit better before reading the rest of this article? Read about Bitcoin here!

What does bitcoin halving and "stock to flow" mean?

In about a week from today, the number of bitcoin created in each block will be cut in half, you can follow how long it is until "halving" here. The number of bitcoin that is paid out to miners per block goes from 12.5 bitcoin as it is today, to 6.25 bitcoin. In value, this means going from an increase in the money supply per day of 126 million NOK to approximately 63 million NOK.

Graph: https://digitalik.net/btc/

Inflation in bitcoin is therefore halved, and that means the same as "stock to flow" being doubled. "Stock to flow" is something that is talked about a lot in the cryptocurrency community after the Dutch economist "PlanB" launched its "Stock to flow model" a year ago. He means that the price of bitcoin is related to "stock to flow", and that within 1-2 years after this halving, the price of bitcoin will increase to over $ 50,000.

"Plan B" recently published a new model, the Bitcoin Stock-to-Flow Cross Asset Model, which describes bitcoin's price development in "clusters" around the phases it has been through. In the beginning, bitcoin was only a "proof of concept" with a market value of around one million USD. Furthermore, bitcoin has gone from being a payment solution, "digital gold" and now a financial instrument. The model looks at the price development based on this and gives a price estimate of $ 288,000 USD per bitcoin for the next phase in the period 2020-2024.

Exciting year for the crypto market

Now there is only one week left until bitcoin halves, and that is one of several reasons why we believe that 2020 can be an exciting year for bitcoin and the cryptocurrency market as a whole. As is well known, we are now in a very special situation with the corona crisis and turbulent financial markets, and this difficult situation will naturally affect the cryptocurrency market like everything else.

March was the month where everything fell. We experienced huge price falls and extreme volatility (fluctuations) in the cryptocurrency market, and bitcoin fell all the way down to $ 3600 for a short period on Friday 13 March. At the same time, the world stock markets fell drastically. In April, it turned around, and almost all the world markets had a big upswing, and bitcoin is now at over $ 9000. It will be very interesting to see how the cryptocurrency market develops in the future.

Bitcoin was created during the financial crisis in 2008

Bitcoin's first block was mined by Satoshi on January 3, 2009. It also contained a message, it was the headline of a newspaper article on the front page of "The Times" the same day: "The Times 03 / Jan / 2009 Chancellor on brink of second bailout for banks”. It is clear that Satoshi, the pseudonym behind bitcoin, was concerned with what was going on in the world's financial markets at the time.

Bitcoin was created during the financial crisis, where many of the world's banks had to be rescued by the authorities at the expense of taxpayers. It seems that Satoshi was motivated by this, and now that we are in the middle of a new financial crisis, there are many indications that interest in bitcoin will increase.

The monetary policy of Bitcoin

From day one, it has been determined that the number of bitcoins will be a maximum of 21 million. It is also confirmed how the number will increase each year until the increase disappears completely in a little over 100 years. This is getting a lot of focus now in these times where the world central banks are printing new money in crisis packages.

"Money printer go BRRR" and the rule in the game Monopoly which states that "the bank can never go bankrupt" have become very popular memes that are widely shared on social media. Many people assume that when the money supply of the world's fiat currencies increases, the price of bitcoin will rise. In addition to the amount of money, the speed of money is also an important part of this picture. The speed of money is a measure of how many times each dollar changes hands within a certain period of time, i.e. how often people spend money compared to just having them in the bank. It has been gradually declining in recent years, so it will be interesting to see how these two factors will affect the price of bitcoin.

Bitcoin as digital gold

Today, it is very common to look at bitcoin as digital gold, a place to store values ​​that should stay in price as other financial products fluctuate a lot. This year, the gold price has been on a rise. It decreased a lot in the first two weeks of March, but has now risen again and is at its highest value since the "all time high" in 2012.

Bitcoin is far from the "all time high" from 2017 of $ 20,000, and is down almost 60% to about $ 9000 right now. One of the reasons why bitcoin is seen as digital gold is the stable and established monetary policy, i.e. the number of bitcoin in circulation and not the pricing, which is far from stable. This monetary policy has been determined and cannot be changed.

Another reason why bitcoin is seen as digital gold is that you can store bitcoin yourself, without having it in a bank account. Gold can be stored in your own safe at home if you wish, bitcoin can be stored in a similar way digitally by storing digital keys.

Cryptocurrency regulations

Firi was created in the autumn of 2017 and from that time until today, a lot has happened within regulation of the market in Norway. In 2018, a new money laundering law was passed, which meant that all companies engaged in the purchase and sale of cryptocurrencies were required to register.

Last year, the law was amended with several requirements for companies operating in this industry. We also see that other public agencies are introducing regulations and adapting their systems for our industry. This applies both in Norway and in other countries.

Overall, we believe this is positive for the market. This shows that cryptocurrencies are seen as serious financial products and are regulated accordingly. It seems like this will only continue in the future, and that we will also see funds and investment products in cryptocurrency on several traditional exchanges. Examples of this are bitcoin futures at CME Group and Intercontinental Exchange.

Increasing investment from traditional finance

In recent years, we have seen that several traditional companies in finance invest in cryptocurrency and work with cryptocurrency. We also see that companies in cryptocurrency carry out acquisitions of traditional financial companies, an example of this is SoFi's acquisition of the payment company Galileo.

Bitcoin as a means of payment

There has also been a major debate within the cryptocurrency community about whether the block size should be increased so that one can use bitcoin's blockchain for large-scale payment services. Now it seems that most people agree that smaller payments are best made on a layer on top of bitcoin, while the blockchain itself is used for larger transfers.

A solution to this is The Lightning Network, and it is getting better and better. There are a lot of companies working with lightning now. There are both easy-to-use desktop and mobile lightning wallets. By using lightning, one can make bitcoin payments within a second with almost no fees. Bitcoin will therefore be much better adapted to payment services in the years to come.

Decentralized finance

Decentralized finance, DeFi, has experienced strong growth over the past year. When it comes to DeFi, it is Ethereum that is completely dominant. A couple of months ago, over a billion USD was unlocked in various DeFi platforms, you can find a good overview of this on defipulse.

Decentralized finance opens up opportunities for decentralized savings products, loans and other financial products. DeFi products utilize blockchains and smart contracts to offer such products without using centralized financial institutions such as banks and exchanges.

Summary of the article

In this article, we have focused on factors that increase our belief that 2020 will be a good year for the cryptocurrency market. Of course, there are also many challenges, and there is no doubt that the world is now in a difficult situation. Although there is a lot going on in cryptocurrency, and we are experiencing increasing interest, it is far from certain that prices will continue to rise.

It is important to do thorough research before choosing to invest, as well as not risk more than you are willing to lose. We are committed to providing the best possible services to those who want to invest in cryptocurrency, and have recently upgraded our platform.

Want to learn more? Read about bitcoin here!

Øyvind Kvanes23/01/2021