As bitcoin prices continue to set new records recently, many investors pay great attention to the upcoming halving event and question whether this event will play a role in the momentum. Strong price increase of the world's largest digital currency...
Many experts say the halving is a significant event that could increase the value of bitcoin as an increasingly scarce commodity. But there are also opinions that the dichotomy is nothing more than a technical change that speculators take advantage of to "inflate" the price of bitcoin.
According to Reuters news agency, here are four things to know about bifurcation:
WHAT IS DIVISION?
A fork is a change to the blockchain—the technology that underpins bitcoin—that slows down the rate at which new bitcoins are created. As originally designed by Satoshi Nakamoto, the mysterious creator of bitcoin, the cryptocurrency will have a maximum supply of 21 million coins.
Nakamoto himself wrote the fork into the bitcoin code, and it works by slowing down the rate at which new bitcoins are created and released into circulation. To date, about 19 million bitcoins have been created.
HOW DOES DIVISION WORK?
Blockchain technology involves creating records of information called “blocks.” These blocks are added to the “chain” in a process called “mining.” Bitcoin miners use massive computing power to solve complex mathematical problems, building the blockchain and receiving rewards in the form of new bitcoins.
But with each halving, the rate at which new bitcoins are created is cut in half, reducing the profitability of mining bitcoins. The blockchain is designed so that a halving occurs every 210,000 blocks added to the chain, which is roughly every four years. The next bitcoin halving will take place in April of this year.
WHAT DOES THE BIUPPER EVENT HAVE TO DO WITH BITCOIN PRICE DEVELOPMENT?
Many investors and experts believe that limited supply gives bitcoin its value. According to the laws of economics, when a good is in limited supply, its price will increase as more people buy it. Therefore, as fewer new bitcoins are created, the price of bitcoin has reason to increase.
But there are also investors and experts who disagree with this view, arguing that the impact of limited supply on bitcoin prices is already reflected in the current price of bitcoin.
The supply of bitcoin on the market depends heavily on mining pools, but this is an area with low transparency. Data on reserves and supply are not available.
If bitcoin miners sell their reserves, the price of bitcoin could face downward pressure. Understanding the underlying dynamics of a cryptocurrency like bitcoin is difficult, as the level of transparency about who is buying and why is much lower than in other assets.
In many people's view, the split event actually played little role in bitcoin's price increase this year, with the price of bitcoin rising mainly due to the US Securities and Exchange Commission's (SEC) approval of bitcoin spot exchange-traded funds (ETFs) in January, as well as expectations that central banks are about to cut interest rates.
However, in the highly speculative world of cryptocurrency trading, analyst explanations for bitcoin price movements can turn into market narratives with a self-replicating effect, amplifying volatility.
HOW HAS BITCOIN PRICE CHANGED DURING PREVIOUS HABITS?
There is no evidence that previous halvings have caused bitcoin to rise in price. However, traders and bitcoin miners have studied previous halvings to confirm that they have been beneficial to bitcoin's price.
When the most recent halving occurred on May 11, 2020, the price of bitcoin increased by about 12% in the following week. That same year, bitcoin prices began to rise sharply, but there were many explanations for the increase, including loose monetary policy and retail investors spending more time at home during the Covid-19 pandemic social distancing. Additionally, there was no real evidence that the halving event played a role in bitcoin's price increase.
During the previous halving in July 2016, bitcoin's price increased by about 1.3% in the following week, but then dropped precipitously in the following weeks.
In other words, it is difficult to determine how previous halving events affected the price of bitcoin, as well as to predict the impact of the upcoming halving on the price of this cryptocurrency.
Authorities in many countries have repeatedly warned that the cryptocurrency market is a highly speculative market, often fueled by speculation and fear of missing out (FOMO), which can cause real losses for investors. This warning comes even as authorities in some countries such as the United States have approved bitcoin trading products.#Write2Win #binance #btc #bitcoin #Web3