Next May, the third-ever Bitcoin’s halving will take place, meaning that half of the current Bitcoin will be mined. This event occurs every four years and may boost Bitcoin prices, although other key drivers could have a more significant, longer-term impact. This is what many cryptoexperts believe.
Bitcoin price has risen around +12.0% over the last week and +6.0% last Monday, outperforming almost all the major market indices. As we know, the supply of the world’s largest cryptocurrency by market capitalisation, is limited to 21 million coins, no more than that amount can ever exist. In 2012 (first halving), the number of new Bitcoins mined every 10 minutes fell from 50 to 25. In 2016 (second halving), it fell from 25 to 12.5. Next May, it will fall from 12.5 to 6.25.
In order to predict future price outcomes, let us look at what happened soon after the other two halvings. Empirical evidence demonstrates that there was a considerable price increase, due to the dramatically supply reduction with constant demand and increasing awareness. 2020 halving should provide similiar evidence and another Bitcoin price run.
Nevertheless, other key drivers could have a more significant, longer-term impact on Bitcoin price. One of the most significant is the global monetary environment, characterized by ultra expansionary monetary policies and zero interest rates policies chosen by central banks. These policies reduce the incentive to hold fiat currencies by investors. Furthermore, rate cuts could lead to higher inflation, which reduces the purchasing power of fiat currencies, although inflation is certainly not the main issue in the global economic agenda. This is why cryptocurrencies are attractive and the price rises accordingly.
Financial downturns could also encourage investors to buy cryptocurrencies and develop crypto-orientated businesses. The trouble is that cryptos failed to demonstrate their role as safe haven, showing a strong correlation with more risky asset classes, such as stocks indices.
In conclusion, Bitcoin’s halving will likely have a significant, positive impact on its price, but many other macro and monetary factors could drive prices even higher.