The historic bitcoin halving event next month will likely boost its price – but other key drivers will have a more significant, longer-term impact.
This is the prediction from Nigel Green, CEO and founder of deVere Group, following a bitcoin price surge of around 12% over the last week and 6% on Monday.
It also comes ahead of only the third-ever bitcoin halving event in May.
The supply of bitcoin is limited to 21-million units, with no more than that amount able to exist. Every four years, in what’s known as “halving”, fewer and fewer bitcoin will be mined.
In 2012, the amount of new bitcoins issued every 10 minutes fell from 50 to 25. In 2016, it went down from 25 to 12,5. Now, in the 2020 halving, it will drop from 12,5 to 6,25.
Green comments: “History teaches us that there is typically a considerable bitcoin price surge resulting from halving events due to the dramatically lower supply with steady demand and increasing awareness.
“There’s no reason to believe the 2020 halving will be any different.”
However, while halving events have previously generated major bitcoin price runs, he believes that other key drivers will have a more significant, longer-term impact on the price of the digital currency.
“These include that we’re moving towards an era of zero interest rates. This reduces the incentive to keep fiat currency. In addition, rate cuts typically lead to higher inflation, which reduces the purchasing power of traditional currencies.
“Therefore, bitcoin, and other decentralised cryptocurrencies become more attractive and the price will adjust upwards accordingly.”
Green adds that the current coronavirus pandemic will also play a significant role in supporting bitcoin prices. “In this time of economic turbulence, the growing consensus that bitcoin is becoming a flight-to-safety asset has further strengthened.
“It’s ‘digital gold’ status is being galvanised,” he adds, referencing the often-used comparison due to precious metal and the cryptocurrency sharing key characteristics, including being a store of value and scarcity.
He points out that bitcoin was born in the 2008-2009 financial crisis as global disillusionment grew with traditional financial institutions. “It can be expected this financial downturn will also encourage people to buy cryptocurrencies and develop crypto-orientated businesses.”
Green adds: “Combined with the fact that bitcoin and other cryptocurrencies are digital and global, and the world is becoming increasingly digitalised and globalised; that demographic trends are on its side; and that institutional investors, central banks and major corporations are all coming off the sidelines, the long-term trajectory is inevitably upwards.
“Halving is likely to have a significant, positive impact on Bitcoin’s price, but it is real-world issues and adoption that will drive prices exponentially and sustainably.”