Hype is steadily growing in the broader cryptocurrency community as the looming Bitcoin mining reward nears half.
As the world grapples with the severe economic downturn brought on by the ongoing global coronavirus pandemic, the value of Bitcoin is at odds with conventional stock markets. One driver of this trend is the halving, which is expected to take place on May 12.
The halving event is highly anticipated, as the Bitcoin reward for validating a block will be halved. It is a basic deflationary function designed by the creator of Bitcoin Satoshi Nakamoto. Since the preeminent creation of cryptocurrency in 2009, two events have been halved. The reward is halved after the extraction of 210,000 blocks, which takes approximately four years. The two previous halving events caused huge price hikes, the first of which drove the price of BTC from $ 11 to $ 1,000 in 2012 in one year. In the year before the second halving, the price of Bitcoin increased steadily.
The movement of Bitcoin prices has been under the microscope of industry experts, traders and hobbyists and there are various forecasts around possible movements in the coming weeks and months.
Bullish, bearish and everything in between
US investor Anthony “Pomp” Pompliano has addressed the upcoming halving in a number of recent letters to subscribers. That of April 29 provided an upside towards halving and potential growth in Bitcoin value after the event:
“This [halving] will see a programmatic decrease in the daily incoming Bitcoin supply from 1,800 per day to just 900 Bitcoin per day. This supply shock historically led to a substantial increase in prices over the next 18 to 24 months. “
A major consideration for Pompliano is the fiscal stimulus injected into the US economy by the Federal Reserve. By classifying Bitcoin as an inflation hedge asset, the U.S. investor seemed confident that the event would be bullish for the BTC:
“I believe that performing the Bitcoin halving at the same time as the Federal Reserve (and other central banks around the world) injecting billions of dollars into the financial system will be used as fuel for Bitcoin.”
Pantera Capital founder and CEO Dan Morehead provided an equally bullish prediction in a letter to investors in late April, which included a high price target within 12 months of the upcoming halving: “If history repeated, Bitcoin would peak in August 2021 – at $ 533,431 “. He added: “Just say that there is more than 50 to 50 chances that Bitcoin will increase – and increase considerably.”
The cryptocurrency investment firm CoinShares also offered a number of perspectives on halving in its latest report by research chief Christopher Bendiksen. The report proposed five different scenarios that could take place during and after the Bitcoin reward halved and provided a gauge on the probability of each scenario. A Bitcoin mining chain death spiral is extremely unlikely, according to the report, while the chances of having no real effect on the value of BTC also seem unlikely.
Bendiksen suggests that two of the most negative scenarios are likely. First, traders may be inclined to buy and sell on the hype and the feeling of the event in half; second, miners may be forced to sell Bitcoin holdings, which will lower the price of the cryptocurrency.
The report offers a prediction that suggests a positive impact on supply, since small-scale mining may not be able to upgrade their equipment to the latest equipment. This could reduce the selling pressure on miners in order to cover costs due to the reduction in the offer of the reduction by half as well as the potential loss of minors due to profitability issues:
“The combination of a 50% reduction in new available supplies and a reduction in the proportion of current supplies offered for sale on the market could significantly reduce the persistent selling pressure caused by miners. These dynamics, in combination with the macroeconomic downwinds presented by world governments, and the existing and growing inflows in passive bitcoin investment products that we are currently seeing, could cause a perfect storm for the price of bitcoin in the medium and medium long term. “
Decred co-founder and current project manager Jake Yocom-Piatt fueled the discussion in correspondence with Cointelegraph. His main argument was that miners would actually be forced to increase the selling price of Bitcoin after halving it, since the price of mining remains unchanged. What has been described as a “supply shock” by Yocom-Piatt could potentially cause a huge increase in the value of Bitcoin:
“In the short term, I expect the price to roughly double, but the longer term forecasts are difficult to make in the context of the boom-bust model of the cryptocurrency markets. The stock / flow ratio increases dramatically due to the halving which is good for the long term price of Bitcoin. “
While there appears to be a bias towards positive price action forecasts from industry experts and the wider cryptocurrency community, some opponents predict a negative outcome.
American investor, politician and economist Peter Schiff has long been recognized as a great supporter of gold, and he delivered a very bearish outlook on Twitter this week. Schiff suggested that the majority of crypto traders hoping for a big benefit might be disappointed:
“A consensual trade is congested and usually doesn’t go as planned. I can’t think of a more consensual trade in #Bitcoin than entering the half long, an event that is universally considered extremely bullish.”
While the various predictions have offered a number of possible results, there seems to be an air of stranger coming in half. Predictions may lean towards a bullish and upside result for Bitcoin, but many seem to be anxiously waiting to see what will happen on May 12.