The coming drop in new bitcoins doesn’t guarantee a price surge

Here’s what we’re all hearing: The number of new bitcoins getting into circulation every 10 minutes will halve from 25 to 12.5 on July 12 at 00:20:18, and the bitcoin price will surge as a result.

Maybe it will surge a little. Maybe not at all. But it’s widely expected to rise. Indeed, many people are looking forward to seeing the value of their bitcoins grow by staggering percentages. Some are even planning to buy up additional coins as an investment before D-day.

The expectations go from modest to wild.

But is there a chance — even a slight one —  that people are setting themselves up for a major disappointment?

Let’s consider the possibility that bitcoin value could actually drop instead.

First, the number of bitcoins rewarded to miners is supposed to cover the costs of electricity and labor.

A halving of this reward will reduce the incentive to mine, and some miners might choose to shut down their rigs and their support of bitcoin, especially if bitcoin users don’t agree to add fees to transactions to cover the difference.

The result could be a reduced capacity and thus, slow confirmation of transactions, which might make the cryptocurrency less attractive. It will chip away at bitcoin’s edge over other payment methods — namely, that it is low-cost.

A second factor that might hold down the price of bitcoin even after the number of new bitcoins coming into circulation is halved is the block size scaling issue. If this is not well implemented, then it might make the cryptocurrency less attractive to investors, thus pushing the price down regardless of the reduced amount of bitcoin going into circulation.

So, while it’s very likely bitcoin prices will jump in a couple of months, anyone banking on a big surge might want to be a tad cautious.

Rupert Hackett is Community Manager at BuyaBitcoin.com.au. He specializes in the digital currency and digital payment space and is currently studying the world’s first Master’s in digital currencies alongside entrepreneurship. He writes for multiple bitcoin and tech websites and regularly blogs for BuyaBitcoin.com.au.