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.Â
Who are the miners? For-profit entities.Â
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