Three weeks after an automated slashing of the reward cryptocurrency miners collect to process Bitcoin transactions, average prices are up while transaction fees have slipped. With respect to the price of Bitcoin, at least, this result follows an historical pattern.
On May 10, the Bitcoin miner’s reward was cut in half from 12.5 Bitcoin to 6.25, the third such “halving” event in the digital currency’s history. Since then, Bitcoin’s average daily price has jumped 10%, from $8,697 to $9,564 at this writing on June 1. If history is any guide, holders may be in for a sweet ride—for a while. In the year following the last halving, which occurred July 9, 2016, Bitcoin’s price surged fully 384%, according to data compiled by Coindesk, a newsletter that follows cryptocurrency.
The impact on the median transaction fee earned by miners has been more modest. This is the fee users of Bitcoin pay to get transactions entered on the Bitcoin blockchain. This levy has dropped 30 cents, to 85 cents, since May 10, according to data from BitInfoCharts.com. In the same time after the 2016 halving, the fee actually climbed, from 8 cents to 12 cents, BitInfoCharts’ data indicate.
The halving event is programmed into Bitcoin’s code and occurs every 210,000 blocks, or roughly every four years. The object is to help manage the flow of new Bitcoin into circulation by reducing the miner’s reward. The total supply of Bitcoin is programmed to cap at 21 million.
Past performance is no guarantee of future results, but previous halvings have led to big run-ups in Bitcoin’s price, which has proven to be notoriously volatile. Besides the one-year increase following the 2016 event, the first halving, in November 2012, was followed by an 8,000% surge over the following 12 months to more than $1,000, according to Coindesk’s data. Within a few weeks, however, the price began to slump, and by spring 2014 it had been cut by more than half. Similarly, the wild runup in 2017 led to a crash that unfolded pretty much throughout 2018.