Bitcoin ‘halving’ could raise its price as more investors flock to cryptocurrencies

The amount of new bitcoins being issued is starting to slow down due to a phenomenon known as halving, or halvening. Every four years, the amount of new coins that bitcoin investors (or miners, as they are called) receive as a reward for mining a block of bitcoin is halved.

“During this time when governments are printing large amounts of money, the rate of new bitcoins will continue to drop,” said Muneeb Ali, co-founder of Blockstack, a digital token company. “But the demand for bitcoin has increased”.

Some investors are predicting new all-time highs for bitcoin

The anticipation of the event has helped drive bitcoin prices up in recent weeks, from a low of around $ 4,100 in mid-March to just under $ 10,000 on May 6. But prices have dropped to around $ 8,700 now that the halving has actually occurred.

So what’s next for bitcoin?

Several experts they say bitcoin prices are expected to soar much higher and even surpass an all-time high of just under $ 20,000 since late 2017. The logic? Economy 101.

Demand for bitcoin could rise as investors see it it safer than government-backed paper currencies at the time of Covid-19 and extraordinary easing measures by the Fed and other central banks.

“Imagine if OPEC halved production overnight. What would happen to the price of oil? It would go up,” said Zac Prince, CEO and co-founder of BlockFi, a company that lends with cryptocurrencies.

Prince said he thinks bitcoin prices will eventually exceed $ 20,000 and skyrocket from $ 40,000 to $ 100,000 over the next two years.

Legendary hedge fund manager Paul Tudor Jones recently touted bitcoin as a potential hedge against inflation that could be created by central bank stimulus, just like gold.

Cryptocurrency investors also point out that bitcoin prices have soared in the first few months after the previous halving in 2012 and 2016. This could happen again this year, mostly due to what is happening in the global economy. .

“This halving is happening at a time when governments are implementing unlimited amounts of monetary and fiscal stimulus,” said Michael Sonnenshein, chief executive officer of Grayscale Investments, a digital currency asset management firm.

“Bitcoin is now seen as a safe haven, a bit like digital gold. It is a verifiable scarce asset with a predetermined and predictable supply,” Sonnenshein added.

But has the easy money already been made?

However, digital currencies are incredibly volatile.

“The halving is a temporal and technical event that has no relation to the long-term value of bitcoin,” said Adam Traidman, CEO and co-founder of BRD, a digital wallet for cryptocurrencies.

Traidman said he expects the price of bitcoin to eventually start rising steadily again, but he doesn’t expect a dramatic rise in the coming months.

Simply put, bitcoin is still too speculative an asset for many investors and the wild swings in price will limit its appeal.

“The problem is that we are looking into the actions of some speculators,” said Alex Mashinsky, CEO and founder of Celsius Network, another crypto lending company.

He argues that the bitcoin price could remain stuck around $ 10,000 for a while until the impact of the halving is fully valued in bitcoin. Others agree.

“There was a psychological impact as we approached the halving due to the significant supply reduction. But the easy money in bitcoin has been made,” said Gavin Smith, CEO of cryptocurrency exchange Panxora.

Volatility could also limit bitcoin’s appeal as a viable currency. How can you use something as a form of payment when its price is so unstable? People are unlikely to try to buy goods in a store (physical or website) if the value of a bitcoin changes so rapidly.

“We are jumping the gun when we talk about bitcoin as a form of payment,” said Daniel Polotsky, CEO of CoinFlip, a bitcoin ATM company. “It is too speculative and unpredictable to be used as a currency.”

That’s why Polotsky says investors should treat bitcoin or other digital currencies as a long-term buy-and-hold investment.

“I know a lot of people who entered bitcoin at the end of 2017 at the peak, and I feel for them,” Polotsky said. “But it’s a marathon. You need to own bitcoin for decades. Most traders will lose money trying to time the market.”