Bitcoin Halving: Great Expectations

May 6, 2020

Crypto World

Ana Rojas

The cryptocurrency world is agitated by a major event – less than a week left before the bitcoin halving. Despite the huge turmoil that the economy has experienced amid the epidemic, the first cryptocurrency continues to recover its position. Will this positive trend continue after the reduction of the reward, or has the coin already drained its potential for growth during the months of quarantine?

Halving is a function programmed for the bitcoin network by its creators. It consists in reducing the reward for mining new blocks in half after every 210,000 blocks. This mechanism controls and restricts the issue of coins, which itself affects the value of the crypto asset. In fact, the halving is a counteraction to coin inflation, maintaining the high value of the coin on the market. Bitcoin itself, as a payment asset, was created in response to the financial crisis of 2008, when inflation captured the world economy, and fiat money began to lose its value dramatically.

It is difficult to assess with great certainty how this event will affect bitcoin. There were just two halvings in the prior history of bitcoin, and they occurred before it became a widely known phenomenon. Besides, sudden and considerable adjustments were made by the COVID-19 epidemic, which caused incredible turbulence in the economy of the entire world. There is no consensus among bitcoin holders: someone believes that the coin is about to begin its large-scale rally, someone that we are waiting for another fall.

Some analysts assume that until the fall, bitcoin and other cryptocurrencies will gradually become cheaper due to the outflow of initial capital. In addition to this, the reduction of the reward for miners to launch a lot of processes to reorganize the cryptocurrency market, which also may have a negative impact. However, there are significantly more of those who support the idea that bitcoin will gain at price after halving.

To date, 18 million BTC’s of 21 million planned have already been produced and reducing the issue of new coins will decrease supply and make bitcoin a more scarce asset. Based on this logic, the price of it should increase significantly after the halving.

Worth noting, many analysts don’t believe in an instant jump in price, rather talking about a long-term positive trend. According to some experts, the cryptocurrency market will be able to hit its previous highs only after the global crisis is over, and this will not happen until 2021. It is also suggested that the main growth has already taken place, and the investment potential was expended on overcoming the crisis, therefore, the bitcoin may remain in a flat trend for a long time.

Even though the halving has high expectations as the main positive trigger for the crypto market, a number of experts say that the significance of this event is overestimated. The impact of the overall economic conditions is hardly less important. Thus, it is best to talk about a combination of all these factors. 

Until recently, digital money was perceived solely as risky assets, but now, against the backdrop of severe economic shocks, things are somewhat different. In an attempt to keep the economy afloat, the authorities of various countries are pumping liquidity into their financial systems. Halving bitcoin offers a quantitative tightening as an alternative for this rampant quantitative easing.

Morgan Creek Digital co-founder Anthony Pompliano in one of his latest interviews predicts that bitcoin will hit $100,000 at the end of 2021. The reason for that, he says, is a combination of the macro-environment with the halving structure. “[In] the United States, we’ve announced two trillion dollars in stimulus. Japan just approved an almost one trillion dollar stimulus plan. They’re devaluing their currencies and when that occurs people are going to seek out inflation hedge assets like gold, Bitcoin, real estate, et cetera.”  With the supply shock, continues Pompliano, and the same or even increased level of demand, there will be natural growth in price. 

Now that is clear that despite the volatility of bitcoin, it is able to recover quite successfully. There is a significant increase in interest among institutional investors, which may indicate that a growing number of people are beginning to consider bitcoin as a new protective asset.

The member of the Bitcoin foundation’s board of directors, Bobby Lee, forecasts $25,000 by the end of this year.

“The past few weeks show that we will see a significant price jump ahead of the third block halving as mainstream investors turn to bitcoin as a safe haven asset whose supply is decreasing.” — Bobby Lee

It is worth being cautious, relying on price predictions that promise fabulous prices in the very near future. However, most of the facts suggest that the holders of bitcoin did not make a mistake with their choice for investment.

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The views and opinions expressed here are solely those of the author. Every investment and trading move involves risk. You should conduct your own research when making a decision.

May 6, 2020