Investor excitement surrounding Bitcoin is resurging as the quadrennial ‘halving’ approaches

Bitcoin surged to $US50,000 on Monday for the first time in two years, spurred by a wave of new investor enthusiasm and mounting anticipation surrounding an enigmatic event known as “the halving.”

Although Bitcoin retreated back into the high 40s on Tuesday, breaking a seven-day streak of gains, it remains significantly below its all-time high of around $US69,000. Nonetheless, Bitcoin has demonstrated an extraordinary resurgence over the past eighteen months, skyrocketing over 200 per cent from its 2022 low of $US16,000.

Several factors are propelling the current Bitcoin fervor, including a surge of capital from investors in newly launched Bitcoin exchange-traded funds (ETFs) and excitement surrounding the halving, a period when the rate of Bitcoin production is halved.

Advertisements

“Now that $US50,000 has been surpassed, $US69,000 followed by $US100,000 seem attainable in 2024 as attention shifts from the ETFs to the imminent halving,” remarked Antoni Trenchev, co-founder of crypto lender Nexo Capital. “This is particularly exhilarating because, if history repeats itself, the next 12 to 18 months will be a whirlwind for crypto.”

The halving, also known as the “halvening,” is a core tenet of the Bitcoin ethos. In essence, the halving is a feature in Bitcoin’s architecture that automatically reduces the pace of new coins entering circulation. It occurs approximately every four years and theoretically drives the price of Bitcoin higher.

To grasp its mechanics, one must understand Bitcoin’s fundamental premise as a decentralised asset — its value is not dictated by a central authority but by a sprawling peer-to-peer network of robust computers that oversee all Bitcoin transactions through a resource-intensive process called mining.

Those operating the networked computers, or miners, are compensated in Bitcoins for their efforts. However, approximately every four years, the number of Bitcoins awarded to a miner (or validator) is halved.

Bitcoin surged to $US50,000 on Monday for the first time in two years

This adjustment serves several purposes. Bitcoin is intentionally finite — only 21 million coins will ever exist — and this scarcity underpins its value proposition, advocates argue. By halving the reward periodically, Bitcoin combats inflation while also incentivising miners. As inflation decreases and Bitcoin becomes scarcer, the theory posits that its price will ascend.

“Each halving has historically spurred bullish price movements,” noted Gareth Rhodes, former deputy superintendent at the New York State Department of Financial Services and managing director at research firm Pacific Street. “This aligns with expectations, as increased demand constraints typically result in price increases.”

In 2020, the reward decreased from 12.5 Bitcoin to 6.25. This year, anticipated in April, it will further diminish from 6.25 to 3.125.

Investors have ample reason to be optimistic, provided they can weather the short-term volatility inherent in crypto markets. In the lead-up to and aftermath of Bitcoin’s inaugural halving in 2012, its price surged by approximately 30,000 per cent, according to Rhodes. Similarly, the 2016 halving yielded an almost 800 per cent increase over two years, while the 2020 event resulted in a 700 per cent gain.

The impending halving is setting the stage for a high-stakes chess match in the markets, according to Henry Robinson, co-founder of Decimal Digital Currency. “Sentiments are bullish, particularly in the long term, but the psychology surrounding such a significant event can fuel significant volatility,” he observed.

“The last month epitomises the crypto experience,” remarked Trenchev. “Investors who purchased Bitcoin ETFs at the recent low of $US38,500 have reaped a 30 per cent profit, whereas those who entered at $US49,000 on January 11 endured a 20 per cent plunge and a trial by fire. Welcome to crypto — it’s not for the faint-hearted.”

It’s crucial to note that the information provided is of a general nature and does not constitute personal financial advice. Individual circumstances, financial situations, and needs must be considered before acting on any information provided.

For more business news, click here.