Could the price of Bitcoin surge after the ‘digital gold’ halves?

There has been a lot of talk about Bitcoin this year. It began with Iran/US tensions driving up the price of the cryptocurrency by 5%.

Nigel Green, the chief executive and founder of deVere Group said at the time, “We’ve seen Bitcoin price surges before during times of heightened geopolitical tensions. For instance, in August it jumped as global stocks were rocked by the devaluation of China’s yuan during the trade war with the US.

“This latest Bitcoin price increase underscores a mounting consensus that Bitcoin is becoming a flight-to-safety asset.

“Bitcoin is living up to its reputation as ‘digital gold’. Bitcoin – which shares gold’s characteristics of being a store of value and scarcity and of being perceived as being resistant to inflation – could potentially dethrone gold in the future as the world becomes increasingly digitalised.”

That is a big call and would seem to be some way off, particularly as gold has once again proven to be a safe haven in the current COVID-19 pandemic.

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The coming halving is expected to boost the price further. The halving will take place on 12 May and is the third since bitcoin was created just over a decade ago.

BTC price run-ups around Bitcoin halving
Source: Coindesk.com

The halving refers to the number of bitcoin rewarded to miners that maintain the bitcoin network. It will drop from 12.5 bitcoin per block to 6.25. Interestingly, the hash rate, which measures how much computer power is being put to work at any one time by the Bitcoin network, rocketed back to near all-time highs in anticipation.

How the price reacts is anyone’s guess, but Bitcoin traders and investors are confident, the halving will have an impact on price.

A senior analyst at e-Toro said “the upcoming halving announcement has attracted investors' focus, and we can expect the price to rise on the halving day or post-halving day.

“There is a chance that the price may exceed the psychological barrier of $10,000 overnight (interestingly, the price did exceed $10,000 last week), but I expect the market to adjust; falling back to around the $8,000-$9,000 level after the halving event.”

Bitcoin lost 10% of its gains falling to $8,800 in early Monday trading, week beginning 11 may 2020.

Lennard Neo, head of research at Singapore-based institutional-grade bitcoin index fund Stack, also believes the price after the halving event will drop before picking up by the end of 2020 and the early part of 2021.

Neo said, “In the longer-term we can expect bitcoin to register significant price appreciation towards the end of 2020 and early 2021. Further turmoil in the broader economies ‘could’ accelerate [bitcoin's] upward trajectory.”

Bitcoin halving explained

Bitcoin halving is not some outlandish cult plot as it sounds, but in fact a way for Bitcoin miners to profit.

Bitcoin halving is not some outlandish cult plot as it sounds, but in fact a way for Bitcoin miners to profit.

Every 210,000 blocks, or roughly every four years, the total number of bitcoin that miners can potentially win is halved.

It is important to note that only 21 million bitcoins will ever be available.

This event is seen as a reward for miners for processing transactions on the bitcoin network. In theory, the value of the most prominent cryptocurrency should rise following the halving event since it means that new units would be harder to produce.

“Unlike most national currencies we’re familiar with like dollars or euros, bitcoin was designed with a fixed supply and predictable inflation schedule. There will only ever be 21 million bitcoins. This predetermined number makes them scarce, and it’s this scarcity alongside their utility that largely influences their market value,” wrote crypto wallet company Blockchain.com ahead of the 2016 halving.

There have been two Bitcoin halvings so far, with each halving raising the price.

Within a year after the first halving, bitcoin rose over 90X from the $10 region to a peak of about $1,180. For the second halving, bitcoin went as high as $2,800 from around $600 within a year before peaking at nearly $20,000 in Dec. 2017.

The question now is whether this third halving will have the same impact. Most commentators are expecting are rise, but not to previous levels.

However, during uncertain times such as cold wars and pandemics, it may very well be seen as a safe haven.

“Bitcoin is fundamentally strong with an unmatched security thanks to its computing power, financial incentives and network effect, and it is the most reliable and scarce digital asset in the world,” said Diego Gutierrez Zaldivar, CEO of IOV Labs, the company behind bitcoin smart contract platform RSK.

“With the economic uncertainty we are witnessing today, it would be no surprise to see the bitcoin ecosystem grow to attract institutional investors who perceive it as a store of value and a hedge.”

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