The Bitcoin halving date is rapidly approaching, predicted to occur sometime around mid-May. Over the past week, the majority of models tracking the build-up to the halving have been altered by the coronavirus epidemic. So what can we expect over the coming months as the global economic downturn shakes markets in the lead up to the halving?
Bitcoin as a world reserve currency?
One theory sees Bitcoin replacing the US dollar as the global reserve currency. This past Tuesday, the Federal Reserve established an initiative to provide credit to struggling small businesses. With many businesses facing potential bankruptcy, 25 million jobs on the line, and central banks easing interest rates, some see another global financial crisis on the horizon.
This would be the first time a permissionless digital currency has had the opportunity to show promise amidst the collapse of fiat currencies. It’s not a new theory but one that is resurfacing in light of the coronavirus threat. One fresh take on it is the spread of infection via banknotes. Digital currencies mitigate this infection potential, although, admittedly credit cards largely do the same.
Miners to be hit-hard by the halving
Cryptocurrency miners could be hit hard with the May halving when mining rewards drop to 6.25 BTC per block. When Bitcoin was still hovering around the $10k mark, the upcoming halving wasn’t as dramatic a prospect. Now, with BTC at around half that value, miners will feel the pinch.
In a recent podcast, MinerUpdate head of research Stephen Quigley said miners are already operating only barely below break-even levels. Bitcoin mining profitability is already at the lowest rate ever and this will only get worse. However, the BTC hashrate is also very low which might help to mitigate some of the costs.
Typically, the algorithm is designed to self-regulate and in usual circumstances would even-out to keep mining profitable. The current situation is far from usual though so if the BTC price doesn’t recover soon, thousands of miners could have to close shop. This could further solidify the perception that proof-of-work (PoW) cryptocurrencies are not sustainable and drive investment into newer consensus methods.
An even stronger recovery?
Blockstream CEO Adam Back sees an incoming boost for Bitcoin as global economies collapse. He theorizes that inflation as a result of quantitative easing and uncertain stocks leave Bitcoin has the only safe bet since it’s fully disconnected from the real economy.
If Bitcoin can remain strong while fiat currencies fail it will essentially decouple from the US stock market and finally see its true worth. While there has been a mild recovery this week, it’s too early to be bullish. As the effects of coronavirus continue to unfold, the following few weeks will be critical for miners in the run-up to the halving.