Hype is steadily building across the wider cryptocurrency community as the looming Bitcoin mining reward halving draws closer.
As the world grapples with the heavy economic downturn spurred on by the ongoing global coronavirus pandemic, the value of Bitcoin has been at odds with conventional stock markets. A driving force behind 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 one block will be reduced by half. This is a core deflationary function designed by Bitcoin creator Satoshi Nakamoto. Since the preeminent cryptocurrency’s inception in 2009, there have been two halving events. The reward halving occurs after every 210,000 blocks are mined, which takes around four years to happen. Both previous halving events have spiked considerable price rallies, the first of which brought the BTC price from $11 to $1,000 in 2012 within a year. In the year that preceded the second halving, the price of Bitcoin increased steadily.
The price movement of Bitcoin has been under the microscope of industry experts, traders and enthusiasts alike and there are ranging predictions around the possible movements over the next few weeks and months.
Bullish, bearish and everything in between
American investor Anthony “Pomp” Pompliano has been addressing the upcoming halving in a number of recent letters to subscribers. The one from April 29 provided a bullish stance toward the halving and the potential growth in Bitcoin’s value after the event:
“This [halving] will see a programmatic decrease in the incoming daily supply of Bitcoin from 1,800 per day to only 900 Bitcoin per day. That supply shock has historically led to a material price increase over the following 18–24 months.”
A major consideration for Pompliano is the fiscal stimulus being pumped into the American economy by the Federal Reserve. Categorizing Bitcoin as an inflation hedge asset, the American investor seemed confident that the event would be a bullish one for BTC:
“I believe that the Bitcoin halving being executed at the same time that the Federal Reserve (and other central banks around the world) is injecting trillions into the financial system will serve as rocket fuel for Bitcoin.”
Pantera Capital Founder and CEO Dan Morehead provided an equally bullish prediction in a letter to investors at the end of April that included a lofty price target in the 12 months after the upcoming halving: “If history were to repeat itself, Bitcoin would peak in August 2021 — at $533,431.” He added, “Just sayin’ that there’s more than a 50-50 chance Bitcoin goes up — and goes up big.”
Cryptocurrency investment analysis firm CoinShares also offered a number of outlooks on the halving in their most recent report authored by head of research Christopher Bendiksen. The report put forward five different scenarios that could take place during and after the Bitcoin reward halving and provided a gauge on the likelihood of each scenario. A Bitcoin mining chain death spiral is extremely unlikely to occur, according to the report, while the chances of no real effect on BTC’s value also seems improbable.
Bendiksen suggests that two of the more negative scenarios are likely. Firstly, traders may be inclined to buy and sell on the hype and sentiment of the halving event; secondly, miners may be pressured into selling Bitcoin holdings, which will drive the price of the cryptocurrency down.
The report offers a prediction of its own that suggests a positive impact on supply, since smaller mining operations may not be able to upgrade their equipment to the latest hardware. This could reduce the selling pressure on miners in order to cover costs due to the reduction of supply from the halving as well as the potential loss of miners due to profitability concerns:
“The pairing of a 50% reduction in available new supply with a reduction in the proportion of ongoing supply offered for sale in the market might drastically reduce the persistent selling pressure caused by miners. These dynamics, in combination with the macroeconomic tailwinds presented by global governments, and the existing and growing inflows into passive bitcoin investment products we’re currently observing, could cause a perfect storm for the bitcoin price over the mid- to long-term.”
Decred co-founder and current project lead Jake Yocom-Piatt added some fuel to the discussion in a correspondence with Cointelegraph. His main point was that miners would be effectively forced to drive up the selling price of Bitcoin following the halving because the price of mining remains unchanged. What was described as a “supply shock” by Yocom-Piatt could potentially cause a huge spike in the value of Bitcoin:
“In the short term, I expect the price to roughly double, but longer term predictions are difficult to make in the context of the boom-bust pattern of cryptocurrency markets. The stock-to-flow ratio is increasing substantially as a result of the halving, so that is good for the longer term price of Bitcoin.”
While there seems to be a bias toward positive price action predictions coming from industry experts and the wider cryptocurrency community, there have been some naysayers predicting a negative outcome.
American investor, politician and economist Peter Schiff has long been renowned as a big proponent for gold, and he delivered a very bearish outlook on Twitter this week. Schiff suggested that the majority of crypto traders hoping for a big upside may be disappointed:
“A consensus trade is crowded and usually doesn’t pan out as the crowd expects. I can’t think of a more consensus trade in #Bitcoin than being long going into the halving, an event that is universally believed to be extremely bullish.”
While the various predictions have offered a number of possible outcomes, there seems to be an air of the unknown going into the halving. Predictions may be leaning toward a bullish outcome and upside for Bitcoin but many seem to be waiting with bated breath to see what will happen on May 12.