Bitcoin halving as a systematic risk

In about 90 days, Bitcoin will go through its third halving event. It means that the yearly issuance of new coins is cut by 50%. Bitcoin does it every 4 years until the maximum amount of 21 million coins are minted.

It's a long-awaited event for speculators because in economics, if you cut the supply by 50%, but the demand keeps its levels, the price should go up.

However, in my opinion, halving is a systematic risk to the security of Bitcoin.

Let's exclude the speculator's view from the equation for a minute, and think what halving really is doing:

  • Bitcoin is issuing new coins - who receives these new coins? Miners do.

  • Why do miners receive these new coins? Because they invest electricity to secure the network. 

  • Who are the miners? For-profit entities. 

  • What happens with a for-profit company, who suddenly starts getting 50% less revenue? The company leaves for another "client."

  • What happens with Bitcoin if miners are leaving? The security of the chain decreases (the hashrate drops).

We also have a recent event that supports the theory of this systematic risk - Litecoin halving, which we had recently. Have a look at what happened there:

Source: https://www.stateofcrypto.report

As you can see, the hashrate of Litecoin dropped instantly after the halving. And it makes total sense. If you’re a miner, why shouldn’t you leave, if at one point you’re getting 50% less revenue?

The biggest strength Bitcoin has, is its level of security. Anything causing its security to drop is a tremendous risk factor for the price of BTC.

While most keep their eyes on the price during the halving, I’m keeping my eyes on the hashrate.

-Edgar

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