Bitcoin Halving Won’t Save Bitcoin Insists Death Spiralists
Bitcoin halvings can be a bit erratic, oftentimes leading to price hikes and the occasional price drop. Halvings always come with lots of news and murmurs. One of the reoccurring murmurs about the Bitcoin network death spiral.
The death spiral is not a new topic. The concept suggests a mass exodus of Bitcoin miners owing to the drop in their rewards owing to several factors.
Zach Resnick, an advocate of Bitcoin and cryptocurrencies, as well as the managing partner at venture capital firm Unbounded Capital, summarized everything;
“As the halving cuts the block reward, a large number of miners will leave the network. As the network hash rate drops, the block time increases, the network becomes congested. This, in turn, makes Bitcoin less attractive, as participants do not want to wait forever to have their transactions processed. This leads to the Bitcoin price falling, which pushes more miners off the grid. This process repeats itself until the network dies.”
The last halving in May reduced miners’ reward from 12.5 BTC to 6.25 BTC. However, it should be noted that the halving didn’t come with any severe issues. Nevertheless, part of Resnick’s predictions, such as increasing transaction fees, falling hash rates, and so on, were apparent 7 days after the halving. It made may people wonder if there was an underlying meaning to the death spiral theory.
Same Old, Same Old
“Lower hash rates, increased block times and, in the absence of some immediate exogenous drop in transaction demand, increased fee pressure, are very well-known effects of drops in mining reward,” said Christopher Bendiksen, the head of research at asset manager Coinshares.
Mind you, this was observed on Black Thursday, March 12, 2020, when Bitcoin price dropped dramatically, thanks to the coronavirus pandemic. Miners received payment in Bitcoin, and as such, when the Bitcoin market price drops 50%, so does the size of their reward. Another example is in November 2018, when the Bitcoin price dipped below $4,000. In this time, Bitcoin lost 33% of its value in less than in a week. Even at that, No death spirals came into existence.
Are Miners Feeling The Pain?
Resnick is one of the many people to predict a death spiral. Santa Clara University Finance Professor Atulya Sarin mentioned it in a paperback in 2018. Sarin explained: “Bitcoin is, after all, a set of encrypted numbers that cannot establish the ownership of anything — Bitcoin will become worthless.”
“The miners are a critical piece of the Bitcoin puzzle,” Sarin said. “And halving the hash rate has driven many of them out of business — the revenue that they generate by mining Bitcoins and the transaction fees is lower than the cost of operations for them.”
The death spiral theory has not gone unchallenged. Gerald Dwyer, a professor at Clemson University, said miners could expect rewards despite the uncertainty of the climate.
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