Bitcoin was created to provide a blockchain-based alternative to the banking system. The protocol, which rules the Bitcoin system, allows funds to be transferred from one account to another without the central authority. Undoubtedly, the system relies on miners who solve complicated mathematical arithmetics to register, verify transactions, and add new bitcoins to the circulation in order to keep the network safe. Those Bitcoins are being added to the circulation called “Bitcoin halving.” The word “halving” refers to a built-in event in the code of Bitcoin. This script decreases the mined reward per block by half every 210,000 Bitcoins in terms of reducing inflation. So, when 210,000 Bitcoins are mined, a “halving” event happens. The timing of “halving” is unclear since it is unknown how long it will take the bitcoin miners around the world to finish the calculations.
The last ever Bitcoin will be mined in the year 2140 because every four years, about 33 “halving” events sum up to 132 years in total. Consequently, when the 21 millionth Bitcoin is created, the reward for miners will hit zero BTC. After that point, it will be impossible to produce any more. From then on, nobody will be able to possibly mine or print the coins, so that Bitcoin will obviously become a ‘deflationary.’
According to history, there is a specific relationship between Bitcoin’s “halving” and its price increase. Actually, the first-ever “halving event” was seen on November 28th, 2012 (UTC) at block height 210,000, when its rewards reduced from 50 to 25 Bitcoins. Bitcoin’s price jumped from approximately $11 to $12. Then, the cost raised to $1,100 within a year. The bitcoin network processed 420,000 blocks in July 2016, when the second event took place.
After that, the block reward was reduced to 12.5 Bitcoins. At this point, Bitcoin’s price changed between $500 and $1,000 for a few months before jumping over $20,000 by December 2017. Bitcoin cost above $9,000 at the time when the third event of “halving” had happened. Within the following year, the reward has been reduced once again to 6.25 Bitcoins, and the price of it reached $63,729,5. Anyway, it should be remembered that not only “halves” are the reason why cost increases, but other different factors as well. Remarkably, each time when the “halving” happened, the bitcoin price climbed considerably, hitting a new record-breaking height.
On March 22nd, 2019, a Twitter user, identified by the username PlanB, announced himself as a Dutch institutional investor with a background in law and quantitative finance. He explained the increase of this value after each “halving” by developing the bitcoin Stock-to-Flow (S2F) model, which employs scarcity to define bitcoin price. Inevitably, gold, silver, and other assets are relevant to the S2F paradigm. Rare assets, according to PlanB, have a stock to flow, which indicates their price depends on how much regular supply can come on against overall supply.
One of the most common questions concerning Bitcoin is about its value within the next two to five years. Some investors were motivated to take a closer look at a fundamental approach. As a consequence, they are analyzing macro trends now in order to forecast future performance. Specifically, one of the most accurate price prediction models in crypto to date, which is called Stock-to-Flow (S2F), exemplifies this the best.