Cryptocurrencies and Bitcoin, in particular, have been on a roller coaster ride in recent years. In 2017, Bitcoin led the cryptocurrency boom soaring more than 2,000% higher at its peak. Just a year later in 2018, Bitcoin led the 'great cryptocurrency crash' falling more than 80% and wiping near $700 billion off the crypto market.
However, with Bitcoin just one year away from a historic event that could change the value of the cryptocurrency forever, it is already up more than 125% this year. The event is called the 'Halving' and it has cryptocurrency traders hugely excited. This article explains everything you need to know.
History in the Making: The Bitcoin Halving
Did you know that the supply of Bitcoin is limited to only ever have 21 million bitcoins in existence? Cryptocurrency miners use specialised hardware and huge amounts of energy to solve a complex mathematical formula of bitcoin transactions which then gets added to the Bitcoin blockchain. And why do these miners do it? Because they get paid to!
Bitcoin miners are rewarded with new bitcoins which are added to the global supply every 10 minutes. In the early days, the black reward for miners was 50 Bitcoins or 50 BTC. Of course, in the early days, this was just worth pennies. While the Bitcoin price is much higher the block reward is now only 12.5 BTC. So why the drop?
The block reward has been cut in half twice before. It's an event that happens every four years (which equates to 210,000 blocks). This process will continue until the last Bitcoin is mined sometime in the year 2140. This whole process is called halving and it is set to happen again in May 2020.
How to Trade the Bitcoin Halving
According to Coindesk, large volatility events seem to occur 12-18 months after each halving. After the first halving Bitcoin went from around $11 to $1,100 and then fell back down to $220. After the second halving, prices went from around $230 to around $20,000 before falling back down to around $4,000.
One only needs to look at Bitcoin's monthly price chart (BTCUSD) to see how volatile it is:
Source: Admiral Markets MT5 Supreme Edition, BTCUSD, Monthly - Data range: from August 1, 2011, to May 16, 2019, accessed on May 16, 2019, at 10:17 pm BST. - Please note: Past performance is not a reliable indicator of future results.
As more participants are now involved in the trading of Bitcoin, some people believe traders and investors are already positioning themselves for the event which has led Bitcoin - and other cryptocurrencies - surging higher. The more recent price action of BTCUSD shows the recent demand more clearly:
Source: Admiral Markets MT5 Supreme Edition, BTCUSD, Daily - Data range: from November 9, 2018, to May 16, 2019, accessed on May 16, 2019, at 10:21 pm BST. - Please note: Past performance is not a reliable indicator of future results.
In the above daily chart of BTCUSD CFD, buyers have managed to stay in control as prices stay above the 20-day moving average. This indicator available for free on the MetaTrader platform, or browser, helps traders to identify the trend of the market.
However, in strong trend markets, some traders often use moving averages as levels of support and resistance in order to initiate long or short positions. In fact, in the above chart of BTCUSD CFD, there have been multiple rejections and subsequent bounces off the 20-day moving average indicator.
Trading with Cryptocurrency CFDs
Cryptocurrency CFDs allow traders to speculate on the price movement on the underlying cryptocurrency rather than owning it.
This allows professional traders to trade 24 hours a day, 7 days a week with EUR cryptocurrency crosses, as well as the ability to go long or short on any cryptocurrency CFD - with no actual crypto assets required for trading.
Trade CFDs on BTCEUR, ETHEUR, XRPEUR, BTCUSD, and many more! Click the banner below to open an account and start trading!
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