With the recent bitcoin halving, people have been wondering why the effect on the bitcoin price has been somewhat mild. Many have expected the price to rise immediately. I wanted to take a minute to explain what it would take for the bitcoin price to rise in very simple terms. Let me start with some facts:
(1) Bitcoins get mined at a rate of approximately 1 block per 10 minutes
(2) After the recent reward halving, the total reward for each mined block is 12.5 bitcoins
With these two facts in mind, we can derive the following:
(3) If bitcoins are mined at approximately 1 block per 10 minutes and rewarded at 12.5 bitcoins per block, then this is equivalent to the following:
1 block and 12.5 bitcoins created per 10 minutes
6 blocks hour and 75 bitcoins created per hour
144 blocks and 1,800 bitcoins created per day
52,560 blocks and 657,000 bitcoins created per year
(4) Assuming that 657,000 bitcoins are created per year and the market price is $675, this implies that about $443.5 million worth of bitcoins are introduced into the market per year until the next halving (about 4 years from now).
In simple terms, this means that in order for the price of each bitcoin to increase, more money needs to go into acquiring bitcoin than the amount of bitcoin that are being generated. So in other words, if money is flowing into acquiring bitcoin at a rate greater than $443.5 million per year, then the price will increase.
This sum of money may seem very vast, but its important to consider that the bitcoin market is global and runs 24/7/365. The $443.5 million average investment rate per year required to maintain the bitcoin price can come from anywhere in the world - whether it be from individual investors, smart money on Wall Street, or Russian oligarchs. Also, with respect to the macroeconomic crises taking hold in the global financial landscape, half a billion dollars is peanuts. If one were to analyze the impending crisis of Italian banks that is making waves in global fiscal circles, the Italian government has requested $40 billion euros to inject into its banks just to stabilize the banking system^.
Interesting times ahead.
^source: http://www.wsj.com/articles/bad-debt-piled-in-italian-banks-looms-as-next-crisis-1467671900