Hash rate, fees, and Tether issuance are all trending higher leading into the Bitcoin block reward halving

The Bitcoin hash rate spiked to 267 Billion Gigahashes per second on May 3rd, 2020, at 11 am UTC, in the lead up to the block reward halving. An average of 144 blocks are mined every day which means approximately 1,800 new bitcoins are generated every 24 hours.

The miner that verifies each block is rewarded for their work with newly-created bitcoins. This ‘block reward’ is how new bitcoins are released into the system. A new block of transactions is added to the Bitcoin blockchain approximately every 10 minutes. The current reward is 12.5 bitcoins per block.

The number of new bitcoins that are created via the block reward is reduced by half every four years. This is known as the Bitcoin Halving. The next halving will be the third halving, and the current block reward of 12.5 bitcoins will reduce to 6.25 bitcoins. The Bitcoin block reward halving is predicted to occur at 01:41 UTC on the 14th of May 2020. This is an average across eight Brave New Coin prediction models.

Transaction fees have spiked as well, jumping to a 10-month high of $2.50 per transaction. However, fees were more than US$30 during 2017, leading up to bitcoin selling for more than US$20,000 leading into 2018. The transaction fees you pay on the Bitcoin network does not depend on the amount you’re transferring. Instead, the size of the transaction in bytes is what matters. Bitcoin fees recently accounted for 1.06% of mining revenue.

Google Trends search data for the “Bitcoin Halving” search term has also been on the rise, and recently reached an all-time high. The search term has been used roughly three times more often than it was during the previous Bitcoin Halving in 2016. Google data for the search term “Buy Bitcoin” shows a small uptick, and the phrase is nowhere near as frequently used when compared to December 2017.

Another sign of growing interest in Bitcoin is the continued growth of Tether (USDT). The Tether market cap has grown more than 56% in 2020, and recently hit US$7.975 billion. It now sits fourth on Brave New Coin’s market cap table, behind Bitcoin (BTC), Ethereum (ETH), and XRP (XRP).

Tether is a stablecoin issued by Tether Limited. Tether converts cash into digital currency, to anchor or tether the value to the price of national currencies like the US dollar, the Euro, and the offshore Chinese yuan. In the month of April, the Tether Treasury printed a total of 1.58 billion of its USDT stablecoin. The increase in USDT represents a 54% supply increase since March.

Tether is called a stablecoin because it is designed to always be worth US$1.00, and maintain US$1.00 in reserves for each tether issued. Tether originally said that each token was backed by one United States dollar. However in March 2019, Tether Limited changed the backing to include loans to affiliate companies.

In 2018, Is Bitcoin Really Un-Tethered?, a paper published by Finance professor John M. Griffin from the University of Texas and professor of finance Amin Shams at the Ohio State University made the case that an increase in Tether printing in 2017 corresponded to an increase in Bitcoin price movements. The paper says that the 2017 Bitcoin bull run was due to market manipulation by Tether and BitFinex.

“Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one. Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight. This one large player or entity either exhibited clairvoyant market timing or exerted an extremely large price impact on Bitcoin that is not observed in aggregate flows from other smaller traders.”

However, a new report, Stable coins don’t inflate crypto markets published last month by Richard K Lyons and Ganesh Viswanath-Natraj found the opposite. “We find no systematic evidence of stable coin issuance driving cryptocurrency prices,” the report states. “We do find, in contrast, evidence of alternative hypotheses for the drivers of issuance. Specifically, (i) stable coin issuance endogenously responds to deviations of the secondary market rate from the pegged rate and (ii) stable coins perform a significant role in the digital-asset economy as a safe haven. This can be seen, for example, in the significant premiums during the COVID-19 panic of March 2020.”

In April 2019 The New York Attorney General office alleged that Bitfinex lost $850 million due to the failure of payment processor Crypto Capital and used funds from Tether to fraudulently cover the shortfall. It has filed civil lawsuits alleging fraud and market manipulation.

Tether and Bitfinex deny the allegations and are continuing their own endeavors as they seek to recover the funds that were seized or lost when Crypto Capital’s bank accounts were frozen. iFinex Inc., the head Bitfinex company, has applied for subpoenas in Colorado, Arizona, and Georgia this month, seeking to depose banks that held funds for Crypto Capital.