We’re back on the bitcoin rollercoaster

Last week the hotly anticipated bitcoin halving took place. As you probably know by now, this event happens around every four years and cuts the reward miners receive for each new coin they create in half. The halving took place without any incident, and bitcoin owners are hoping that they will see the same surge in price that followed the two previous halvings. It has to be said that this is unlikely to happen this month, and we may have to wait for 12 months to see the true effects.

BTC could hit $100,000

Some enthusiastic bitcoin supporters, namely the Winklevoss Twins, said, “We’re set for another order of magnitude step up — whether $20,000 is the bitcoin base, maybe we see $100,000.” As we know, big numbers for bitcoin have been a feature of the headlines for quite some time, but we would all be well advised to take a ‘let’s see’ approach to investing in it.

One thing we must keep a vigilant eye on is the mining community. A halving makes their work less profitable, and it could be that bitcoin would need to sit at the $10,000 mark for them to achieve a breakeven price. Inefficient miners are most at risk, and they may need to liquidate their rewards. This would flood the market with bitcoin, and that in turn could threaten the fortunes of more profitable miners due to a sudden growth in supply of the digital asset.

Billy Bambrough reported on 12th May in Forbes the view of Gavin Smith, chief executive of Hong Kong-based bitcoin and cryptocurrency exchange and hedge fund Panxora, who said, “The recent much-hyped halving, while largely psychological in impact, could create a catalyst drawing new players into the market and contributing to the rise in the value of bitcoin.” That sounds promising, and he added to that, saying bitcoin is at “the start of a multi-year bull phase” though there could be “a bumpy road ahead.”

A hedge against inflation?

There is other interesting activity to factor in, such as more investors using bitcoin as an inflation hedge to protect their assets against currency devaluation. This has been fuelled by the US Federal Reserve pumping trillions into the economy to alleviate the effects of the lockdown. It isn’t the only government to have taken this step, and there is concern that these massive injections may lead to over inflation, as well as out-of-control debt.

Jean-Marie Mognetti, chief executive of digital asset manager CoinShares, commented: “In a world where investors continue to seek protection for their portfolios against the world’s central banks’ behavior, bitcoin, a digital currency whose supply is programmatically defined to reduce until it reaches its maximum supply, would seem to be the perfect hedge for any institutional investor portfolio.”

There is a belief that if bitcoin becomes a safe-haven asset and a hedge against inflation, then its price will head for the Moon over the next couple of years, and we will see that December 2017 price of $20,000. Perhaps $100,000 isn’t so pie in the sky after all.

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