As most of you know, I still own some Bitcoin and Bitcoin Cash off the original split. From what I understand, the next “Bitcoin Halving” is about two weeks away. Industry experts aren’t certain of the exact date but many believe it will happen on or around May 12th. Google searches have been creeping aggressively higher and crypto investors around the globe are patiently waiting on the edge of their seats to see how things play out.
At the time of this writing (8/29/20), Bitcoin is trading just under $8,900, and the extreme volatility in the cryptocurrency has continued. In mid-February prices rallied to nearly $11,000, but by mid-March, prices were again sub-$4,300. To say this speculative investment has been a wild ride is a huge understatement.
Let me explain the “halving”… since Bitcoin was founded in 2009, the halving is an event that takes place roughly every four years. During the halving, block rewards are cut in half, which in turn, limits the supply of bitcoins. This May will be the third Halving in Bitcoin’s history, which means the cryptocurrencies block subsidy will drop from 12.5 BTC to 6.25 BTC per block. Keep in mind, every time this Halving occurs it reduces miner income significantly, which also drives up Bitcoin’s “stock-to-flow” ratio because there will be fewer “new” Bitcoins created relative to the existing supply.
Bulls are hoping the more difficult it becomes to mine the Bitcoin the tighter supply will become. Remember, many Bitcoins have fallen into the strong hands of long term cult-like investors. Meaning they are regularly investing small amounts but accumulating supply
Historically, there’s also a reason for Bitcoin bulls to be excited, and that is how the investment has performed following previous “halvings”. On November 28th, 2012, the first Bitcoin halving occurred. The price of Bitcoin at the time was trading around $11, one year later the price had increased to around $1,000. During July 2016, the second halving took place and the price of Bitcoin was trading around $700, in 2017 the price skyrocketed to almost $20,000. So who knows, perhaps there could be some longer-term tailwind created by the halving? A few bulls actually believe we could see prices run up higher into the halving, perhaps pushing prices back north of $10,000 in the next couple of weeks.
During the past several years of being invested in Bitcoin, I’ve heard all kinds of wild price projections and forecasts. I heard billionaire bitcoin bull Tim Draper say the price of one bitcoin could rise to $250,000. I’ve also heard former Goldman Sachs hedge fund manager, Raoul Pal, say that the price of bitcoin could hit $1,000,000. In addition, other Bitcoin investors continue to argue the recent stimulus checks sent out by the government could cause a serious bullish scenario in the crypto world. Several large investors believe there could be some pressure put on the U.S. dollar causing deflation followed shortly after by hyperinflation, which could cause Bitcoin prices to jump aggressively higher. Other bulls are arguing this is a longer-term play and we won’t see any type of massive spike for several more years.
Bears argue that the upcoming “halving” has already been priced in as Bitcoin prices have increased over +30% in the past 30-days. Bears are also pointing to stiffer competition during corona from more traditional investments like gold, which is up +15% on the year. I’ve also heard many bears argue that there could be a massive sell-off in Bitcoin if North Korea officially confirms Kim Jong Un’s death. The United Nations estimates that North Korea has collected around $670 million in crypto assets, while many inside the trade say the actual number is as high as $2.5 billion due to illegal wallets.
I like to watch and monitor the number of new crypto wallets created, which helps me better understand the number of investors and nearby interest in Bitcoin. Most recently, the number of Bitcoin addresses or wallets holding at least 0.1 Bitcoin (BTC) has surpassed three million for the first time ever. In addition, there have been two noticeable spikes in Bitcoin history. The first one occurred between late November 2017 and the end of January 2018 when the number of wallets jumped by +2.5 million. The second started more recently with over +2 million new users being registered since the beginning of March 2020. Overall, it’s fully believed that the 2020 halving will impact the Bitcoin community’s future in some shape or form. I suspect anyone even slightly connected with Bitcoin should be prepared for May as it may be a wild one filled with many surprises.
Personally, I consider myself a longer-term player in Bitcoin, simply holding the coins I currently own and going to sleep. I’ve told the kids if it hits a home run like some forecast it could be a bonus windfall for our family. Check back in 20-years and I’ll let you know. On the flip side, it wouldn’t surprise me to see prices fall back to sub-$2,000, where I will probably buy another couple of handfuls. I’m a gambling man, that’s what I do…