Bitcoin halving in May

Bitcoin halving in May

07 May 2020 from Anna SvahnReading time: 3 minutes

One of the characteristics that Bitcoin followers are pushing hardest is that the crypto currency's inflation rate, which decreases at every half, and eventually, when all 21 million Bitcoins are mined, will be at 0, i.e. at an inflation rate of 0%.

We distinguish between so-called hard / sound and soft money. By hard, or sound, we mean money with a low inflation rate, or from which it is difficult to make more. Gold is one such example, and so is Bitcoin. The opposite, then, is the money that we can create as much as any of, like fiat money, which is not backed by anything other than trust - however long the trust might last. Historically, all fiat currencies have ended in the same way, with hyperinflation and lost confidence, which eventually requires a reset of the financial system.

Bitcoin was designed to become a deflationary currency. Just like gold being scarce, as it is the only way to prevent hyperinflation that ultimately destroys the currency.


Note: Future values estimated. Past development is not a reliable indicator of future results.

In 2009, when Bitcoin was first launched, the reward for miners per block was 50 Bitcoins. Since then it has gone from 50 to 25, today it is 12.5 and in May it is halved again to 6.25. Each halving event, which makes Bitcoin more hard or sound, has historically led the price to move, and many expect the same thing this time as well.

Note: Past performance is not a reliable indicator of future results.

If you just take into account the logarithmic graph above that indicates that Bitcoin at these levels prior to the halving of May 12, 2020 seems worth buying, then it is easy to be persuaded to invest in the cryptocurrency. But today, the reality looks slightly different if we compare it to earlier halves.

After the first run on the stock market due to Covid-19, Bitcoin also collapsed with other assets. In a total sell- off, investors flee into risk-off assets such as US dollars and US treasuries. If the stock market declines again, despite the Fed pushing money and doing what they can to keep the rates up, there is some likelihood that Bitcoin will follow this time as well.

However, that the stock market would collapse is only hypothetical, but very fundamental points to it. However, if today's money squeeze leads to inflation and we may even see stagflation as a result of money squeezing and the high unemployment we are moving into, Bitcoin could potentially still function as a good inflationary protection. But so far it is too early to say, and the price may very well initially rise. But one should be aware that it is a volatile asset with high correlation to the stock exchange at heavy downturns, and take size accordingly.

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

27/06/2022 19:42:05


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