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The much anticipated Bitcoin (BTC) halving finally took place on May 12. This is the third time in 11 years this has taken place. This is related to a technical adjustment that takes place every four years or so. Interestingly, halving means that the reward for using software to mine Bitcoin drops from 12.5 new coins to 6.25.
Halving was actually written into Bitcoin’s code by its creator, Satoshi Nakamo. This was done as a measure to control inflation. It is reported that there are only 21 million bitcoins in existence. Furthermore, there are 18 million coins already in circulation.
Bitcoin relies on mining computers that can validate blocks of transactions. This is done by competing to solve mathematical puzzles every 10 minutes. The first miner to solve the puzzle and clear the transaction earns new bitcoins. After 210,000 blocks have been mined (around every four years), the technology is designed to cut the reward in half.
The bigger news story posted on Sunday was a sharp decline in BTC market value. Trading around $10,000, the price dropped to $8,100 in just over one day. There was a nine percent decline that took place over the span of just one hour.
Going back to the middle of 2018, there has historically been a strong resistance to BTC trading in the range of $10,200 to $10,500. In June of last year, there was a run to $10,500 that surged to $14,000. However, BTC has failed to move past this range five of the last six times over the two-year span.
Once BTC could not hold at $10,200, the biggest players started to short the crypto over every major exchange. The open interest in the four biggest derivatives exchanges plunged. This includes Binance Futures, BitMEX, Deribit and OKEx. The open interest is tied to the total amount of long and short contracts open at any given time.
The net result was crypto industry “whales” betting against BTC at a critical time frame following a market run.
The current market situation remains volatile in the face of this global pandemic. However, there is also a history of BTC volatility in anticipation of halving. Going back to the previous halving in 2016, the BTC market value dropped 30 percent after that event took place.
Past trends have demonstrated that whenever there is a large influx of investors, the market is subject to a steep decline. New investors in BTC in anticipation of this year’s halving actually contributed to the most recent decline. Current trading from Sunday’s $8,100 low point has rebounded to almost $9,000 as of Tuesday afternoon.