Bitcoin’s third block reward halving is less than a week away. It will reduce the block reward from 12.5 BTC to 6.25 BTC thus slowing down the issuance rate of Bitcoin. After the halving Bitcoin’s inflation rate will be lower than the global average and that of gold. Historically halving has been a major catalyst for a price surge. For instance, Bitcoin gained about 8000% within the 12 months following the 2012 Bitcoin halving and around 2000% within the 18 months following the 2016 halving. However, the price of Bitcoin doesn’t appreciate immediately after the halving. The price of Bitcoin depends to a large extent on miners as they are the only supplier of new coins in the market.
Miners create constant selling pressure by selling their newly mined Bitcoins in order to pay for their operational expenses. As miners' income decreases sharply (1800 BTC/day now, 900 BTC/day post-halvening), the selling pressure will increase until the least efficient miners will leave the market. At first inefficient miners try to cover their operation through their Bitcoin treasuries that were accumulated during profitable periods to stay in business. The higher their breakeven price (which depends on the type of hardware they use and electricity price), the more they need to sell to cover operational costs. Initially this process might drive Bitcoin’s price down and continue until the least efficient miners run out of Bitcoin to sell and are forced to leave the market.
When the least efficient miners leave, the hash rate drops, and Bitcoin’s mining difficulty level decreases in order to incentivize the remaining miners to continue mining. The most efficient miners who have access to the newest hardware or cheapest energy remain in the market and capture more market share. The remaining miners will become more profitable and need to sell less Bitcoin to cover their operational expenses. If the price of Bitcoin reacts to this diminished selling pressure and increases, this will create a positive feedback loop for miners who survived and enable them to sell even less, accelerating the upwards price movement.
Many famous investment advisors suggest to investors to buy some Bitcoin before the next halving event. For example, in his weekly newsletter “Greed & Fear”, Christopher Wood, global head of equity strategy at the Jefferies LLC, American multinational investment banking firm suggested that “investors should buy Bitcoin ahead of the halving. The halving should increase upward price pressure assuming demand for Bitcoin continues to grow, as was the case after the previous halvings in 2012 and 2016.” He also added "Bitcoin should be a source of diversification in a portfolio, as is gold, precisely because of its truly decentralised nature. It is this feature, combined with the fixed supply, which makes it a hedge against central bank manipulated fiat money."