July 2016 might be Bitcoin’s biggest month since the currency was created in 2008. The next halving of newly-mined Bitcoin is going to happen soon, causing the supply of newly created Bitcoin to drop by 50%. This is one of Bitcoins most loved and honored principles since it is responsible for the maximum of 21m Bitcoins in total. Therefore, this halving makes Bitcoin a deflationary currency which is also what made it so different to all the other currencies back then.

It will be interesting to see what happens to the Bitcoin price when the halving takes place. Already from a dummy perspective it seems obvious that there has to be a positive effect on the price if you have a constant demand but only half of the supply from one day to the other. But is that really so?

In this text I am going to give examples of commodities where similar things happened to the supply of the good: oil and wheat.

Oil (1973-1974)

In the case of oil, the decrease of its supply by 5% in 1973 lead to an oil price increase of 70% from 3$ to 5$ within only a few months. The OPEC countries back then announced an embargo against the US, including many other western countries since they were supporting Israel. The following year, the price went up to 12$ per barrel which is 300% higher than the price before the oil crises.

Still, Bitcoin is not oil and the demand of oil was increasing strongly during that time because of the world economy.

Even though the affect of the 5% reduction of supply might have triggered a massive price increase, there still was an increasing demand so that it is hard to prove that the reduction caused the high growth of the price.

If you take a closer look at how the oil price has developed after the embargo, you’ll see that the price goes almost down to the price before the crisis. This indicates that the price increase has mainly been caused by the lack of supply.

Wheat (2010 and 2012)

Since oil is a good indicator but no proof I looked for examples where the demand stayed more or less the same. I found the wheat price. The demand of wheat is different to oil – the demand is growing slowly and it might also be volatile, but compare to other goods the demand of wheat stays more or less constant and stable. So let’s take a closer look at the wheat market in the years 2010 and 2012.

2010 and 2012 were both really dry years. Way less rain then the years before and after and it was also very hot. Let’s take 2012 as an example. 2012 was the driest year in the US since 1895 and also a very tough year for Russian and Ukrainian agriculture, which lead to lower wheat production worldwide.

In 2012 the production of wheat was 665,326 Megatons which is not even 5% less than the year before. The demand stayed the same.

The price reacted the same both years. Within a few month the price of wheat grew by 50% 2012. In case of wheat there was no increasing demand from the buyers like with oil. The demand stayed constant. Wheat is therefore to compare to the Bitcoin situation 2016.

My personal opinion is that the price of Bitcoin will behave exactly like the price of wheat when it is getting closer to July 2016.

The price of Bitcoin will grow. In case of wheat 5% reduction lead to 50% price increase. Bitcoin will have 50% reduction. What do you think how high the Bitcoin price is going to be then? The answer is: nobody knows, but it will be a huge increase for sure.

Yet, there is one big difference between weather/climate and Bitcoin: Bitcoin is predictable over years and therefore people know about the 50% reduction in July next year.

So my final question is not if we have have a new Bitcoin price rally – my only question is:

When is the race going to start?