Digital Assets: Bitcoin Rallies as Halving Approaches

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Bitcoin’s halving, a pre-programmed, seminal event is a week away.

Bitcoin prices took off on Wednesday, April 29. After taking out resistance at $7,779, BTCUSD surged to a high of $9,453 the next day. Prices have come off a bit since that high, and are currently moving sideways but above the psychological mark of $9,000, at $9,029. Even after the minor correction, it’s a sobering thought that BTCUSD has more than doubled from its March sell-off low of $4,017.

With halving now just a week away, is BTC repeating the script from its previous two halvings? (CoinDesk)

Will history repeat?

What is bitcoin’s “halving?” The term refers to the halving of mining rewards. Currently, miners who find blocks earn a reward of 12.5 BTC per block. However, on May 12, this reward will stand halved to 6.25 BTC per block.

On May 12, the bitcoin cryptocurrency will undergo the third halving since its inception in 2009. The previous halvings took place on November 12, 2012, and July 10, 2016, respectively.

On both the two previous occasions, bitcoin enjoyed sharp rallies post the halving event, though, in 2016, there was a dip before the rally commenced.

So, can we hope for a repeat this time around?

Theory 1: bitcoin prices already discount the halving

According to one view, the imminent bitcoin halving has already been analyzed to death in crypto circles and the event could already have been priced in (buy the rumor).

There is, therefore, the risk of a correction after the event (sell the news).

Theory 2: the supply cut will boost prices

“Halving will reduce the amount of bitcoin’s rewarded to miners, thereby reducing the supply of coins entering the market,” said Don Guo, CEO of Broctagon Fintech Group to CoinDesk. “Not only does halving boost the price as a result of the added scarcity, but the additional media attention and the positive impact this has had on bitcoin prices historically will drive up demand.”

Theory 3: don’t forget there’s a pandemic around

The Covid-19 pandemic has forced countries around the world to fight looming recessionary conditions with “all it takes” stimulus measures running into trillions of dollars. Traditional financial investments have taken a massive hit. Investors are looking for alternative avenues such as gold and digital assets.

There is a possibility that the halving and “risk-off” sentiments could come together and send bitcoin rocketing higher. This is a very real possibility given that there is a risk of a second wave of coronavirus infections, as well as the increasingly hostile interactions between the US and China relating to the latter’s handling of the virus.

Anyway, bitcoin’s price action upon halving has traditionally been the subject of enormous debate, and this time around it’s no different.

We’ll probably get better clues closer to the event.

Related Story:  Digital Assets: How ‘Helicopter Money’ Will Affect Bitcoin and Gold                                                  

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