Why Prices May Not Rise Before The Bitcoin Halving

  
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Everyone is talking about the Bitcoin halvening. 

In less than two weeks, the block reward given to miners for successfully mining a block will be cut in half. Right now, 12.5 Bitcoin are rewarded for each block, and that will drop to 6.25 shortly.

But the problem with a sharp drop in Bitcoin block rewards is that it may cause miners to act differently. This may then cause prices to react differently.

Most people believe that Bitcoin prices will increase leading up to the halving because new coins are about to become more scarce. But scarcity is not the only thing affecting Bitcoin prices leading up to a halving.

One strong influence on Bitcoin prices before a halving is sell pressure from miners. Miners always need to make money to pay for their electricity costs, but prior to the halving they may be selling more to prepare for a drop in revenue after the halving.

Because when the halving occurs, miners will be earning half of the rewards they had previously earned, with exactly the same costs for electricity and equipment maintenance.

In short, they will need cash to pay their expenses prior to the first difficulty adjustment block two weeks after the halving.

It may seem smart for miners to turn off their machines and save money during this two week difficulty adjustment, but large miners are often tied into long-term electricity contracts that make “shutting down” unfeasible as a short-term strategy.

Therefore, prices leading up to the halving may be capped by the sell pressure of miners trying to get cash to pay off their costs. Of course there are many other factors that determine Bitcoin prices, but sell pressure from miners is something to keep in mind.

The macroeconomic picture is another key factor influencing Bitcoin prices, one that nobody completely understands. So instead of relying on absolute rules of thumb like “Bitcoin prices always go up before a halving”, remember that Bitcoin is a complex system of incentives between lots of participants around the world. 

Each participant is looking out for their best interests, and these interests often overlap. While retail investors start searching for “buy Bitcoin” in increasing volume, miners may also be looking to the opposite side of the trade by selling Bitcoin.