Bitcoin (BTC) offshoot bitcoin cash (BCH), the fifth-largest cryptocurrency by market value, underwent its first “halving” Wednesday, but the process is unlikely to have a bullish impact on the cryptocurrency’s price, say analysts.
The event – programmed to occur every four years – took effect around 12:20 UTC, reducing the rewards per block mined on the Bitcoin Cash blockchain to 6.25 BCH from the current 12.5 BCH.
The cryptocurrency rose to a four-week high of $265 early Tuesday and was last seen trading near $276 – up 2 percent on a 24-hour basis – according to CoinDesk’s Bitcoin Cash Price Index.
Meanwhile, bitcoin, the top cryptocurrency, is trading in the red near $7,260, while bitcoin SV (BSV), a cryptocurrency that forked off BCH, is still up over 6 percent. BSV, too, will undergo a reward halving on Friday, while bitcoin’s next halving is due in May.
Some observers believe the halving, which creates a supply deficit, could result in a big rally for BCH.
The above argument, however, does not take into account two important factors: the per-block revenue will drop by 50 percent following the reward halving, and miners operate on cash or fund mining costs by liquidating their holdings.
Essentially, halving leads to a drop in mining profitability and may force small or inefficient miners to shut operations. These players usually offload their holdings while exiting the market, leading to a slide in price.
Put simply, halvings are not always bullish. As an example, litecoin (LTC) underwent a halving on Aug. 5, 2019, following which the price fell from $100 to $50 in the four months to December. It’s hash rate, or computing power on the network, also tanked over the same time period.
“The conventional crypto wisdom that halvings magically induce a bull run such that the real USD value of miner revenue does not cut in half is naive wishful thinking,…