While there is some positivity for the cryptocurrency's long-term future, this month may be volatile
An important event for cryptocurrencies took place Monday – the Bitcoin ‘halving’ – but what is it and will it benefit investors?
The event takes place roughly every four years and cuts in half the number of Bitcoin that each participant in the cryptocurrency’s blockchain network receives as a reward for ‘mining’ the coins to enable the processing of transactions – stop me if this gets too techy!
Bitcoin is tipped for a bull market by 3iQ Corp CEO Fred Pye, who recently launched The Bitcoin Fund on the Toronto Stock Exchange.
The security and transparency of Bitcoin relies on this network of computers that must all verify a transaction in order to avoid cheating the system.
The halving cut the reward to 6.25 Bitcoins and cuts the number of coins being mined. Bitcoin has a finite supply of 21 million coins with more than 18 million already in circulation. This activity creates a synthetic kind of inflation.
Will investors benefit?
The two previous mining events have seen sharp increases in Bitcoin values. The 2016 halving sparked a 300% rise.
But the hype surrounding the 2020 event and the unusual times we are in, failed to produce such a jump.
Nigel Green, CEO of global financial advisory deVere Group, believes that gains will come.
“There is no reason to believe this time the market will not respond with a longer-term upward trajectory,” he said. “Indeed, the rally which is likely on its way could potentially be even more dramatic because there is more mass awareness than ever before of the long-term use of and need for digital currencies.”
Investors may see some volatility this month, but cryptocurrency advocates believe that investing in Bitcoin is a valid hedge against inflation that may spike due to central banks coronavirus responses which include ‘printing money’ in some cases.
“Traditional currencies are devalued and inflation fears rise on the back of the mass printing of money, the likes of which we have recently seen in the US, where the nation’s central bank has added trillions of dollars to the money supply,” added Green. “Such measures will inevitably encourage even more investors to consider decentralised, non-sovereign digital currencies.”
Green says that the way big investors use these halving events shows that Bitcoin is part of mainstream finance and has a secure long-term future.
The value of the cryptocurrency was rising in the lead-up to the halving before dropping back just before Monday’s event.
“This shows that there has been increasing retail demand for Bitcoin as investors see and understand the growing influence and huge opportunities of digital currencies in an increasingly tech-driven world,” he explained. “With this in mind, large cryptocurrency investors, known as ‘whales’, accumulate crypto at much lower prices then start a sell-off to capitalize on this sustained growing demand.”
Great speculation
Tudor Investment Corp. CEO and founder Paul Tudor Jones also believes that Bitcoin could be a winner.
“It’s not the great cure for all the monetary ills, et cetera. It’s a great speculation,” he told CNBC on Monday. Although his Bitcoin holding is less than 1% of his portfolio, it may become one of his best performers.
“We’re watching the birthing of the store of value and whether that succeeds or not, only time will tell,” he added. “What I do know is, every day that goes by and Bitcoin survives, the trust in it will go up.”
