Brisk business at SA crypto exchanges as Bitcoin is halved

South African crypto-currency exchanges reported a surge in transactions ahead of the Bitcoin halving process that happened last night.

Farzam Ehsani, co-founder and CEO of local crypto exchange VALR, explains that Bitcoin halving, or “halvening”, which happens after four years, refers to the algorithmic reduction in the amount of Bitcoin that gets issued into the Bitcoin network every 10 minutes.

According to Ehsani, for every 210 000 blocks (which occurs on average every four years), the amount of Bitcoin issued into the network halves.

“When Bitcoin started just over a decade ago, 50 Bitcoins were mined, increasing the available supply every 10 minutes,” he says.

“At the first halving, this figure was reduced to 25 and then to 12.5 at the second halving. The third halving, which occurred just before 9:30pm last night, 11 May 2020, has resulted in 6.25 Bitcoin being released into the Bitcoin network block which is mined on average every 10 minutes.”

He points out that Bitcoin's value proposition is predicated on its scarcity and utility. “The Bitcoin halving is directly related to the limited supply of Bitcoin that will ever be available.

“There are just over 18.3 million Bitcoin in existence today, and due to the halving every four years, only 21 million will ever become available. The full 21 million will only become available in the 22nd century, in about 120 years.”

Richard de Sousa, CEO of AltCoinTrader, notes Bitcoin halving is an intricate design feature of the Bitcoin protocol which maintains the scarcity of the coin.

“This is unlike fiat currencies that can be printed at the will of government, thus causing inflation and debasement in the value of fiat.”

De Sousa adds that the halving event takes place every four years where the reward for mining new transaction blocks is halved, meaning miners receive 50% fewer Bitcoins for verifying transactions on the Bitcoin network.

“The deflationary measure of the Bitcoin halving reduces the amount of new Bitcoins entering the Bitcoin ecosystem, creating a demand which usually results in a price increase,” he explains.

AltCoinTrader witnessed similar patterns in the third halving event that mirrored the 2016 second halving event, whereby many new customers entered the Bitcoin ecosystem, says De Sousa.

“User registration increased on AltCoinTrader's platform coupled with a greater desire to understand Bitcoin. People are starting to realise Bitcoin is not a fad and that there is so much supporting technology in and around the crypto-currency.

“Institutional investors have also begun to understand this and have increased their appetite for Bitcoin. Prices have risen over the past few weeks as the demand has increased prior to halving uncertainty.”

Similarly, Ehsani notes: “As the halving approached, VALR saw a greatly increased level of trading and new interest in Bitcoin.

“In the last 24 hours, we have processed close to R70 million in Bitcoin trading and new sign-ups to VALR are at their all-time high. We welcome a new VALR customer every few minutes.”

Marius Reitz, GM for Africa at Luno, says since there have only been two previous halvings, this means there are only two data points, which is not significant enough to devise a trend.

He points out that when the first halving took place in 2012, there were only 43 000 wallets (accounts). By the second halving in 2016, there were around seven million and today there are more than 48 million wallets, but this is still a relatively small number, says Reitz.

In theory, he notes, if supply slows down and demand stays constant, prices will rise. “In the past, the halving has correlated with an increase in the price.

“The first halving took place on 28 November 2012, when one BTC was worth around $11. In the course of just a year after the event, Bitcoin’s price swelled to $1 100. The second halving took place in July 2016. Bitcoin maintained a price of around $600 to $700, before flying to $20 000.”

UK-based DeVere Group’s Nigel Green believes Bitcoin’s historic halving event on Monday underscores that the “long-term future of crypto-currencies is secure”.

He comments that the historic Bitcoin halving event has demonstrated in two ways that digital assets’ long-term future is secure.

“First, the price had been rising steadily ahead of the highly-anticipated event – almost three-fold in the last three months –and then dropped back just before and after it took place.

“This shows there has been increasing retail demand for Bitcoin as investors see and understand the growing influence and huge opportunities of digital currencies in an increasingly tech-driven world.

“With this in mind, large crypto-currency investors, known as ‘whales’, accumulate crypto at much lower prices then start a sell-off to capitalise on this sustained growing demand.”

He continues: “Second, history teaches us that after this post-halving drop in price, there is a subsequent bull run.

“Previous Bitcoin halving events have prompted impressive price climbs. The 2016 halving triggered a 300% jump in the value of Bitcoin.”