Bitcoin, the world’s largest cryptocurrency, could be in line for a sharp rise in price following the latest halving, according to Pieran Maru, investment manager in the Liontrust Global Equities team.
Bitcoin is ‘mined’ by computers, which create new coins. When it first started, each time a successful block of coins was mined in January 2009, the individual responsible for doing so would receive 50 Bitcoins.
However, this has come down significantly thanks to ‘halving’ events, which occur every 210,000 blocks mined. There have been three so far, but the fourth is expected to take place this week.
In the first ‘halving’ event in 2012, the number of Bitcoins given to someone who successfully mined a block dropped from 50 to 25. Once the next halving event occurs in the coming days, people who mine the cryptocurrency will receive 3.125 Bitcoins for their effort, down from the 6.24 Bitcoins they currently receive. This is expected to take the number of new Bitcoins produced per day down from 900 to 450.
“This potentially could lead to an increase in the price of Bitcoin, if the demand remains constant or increases, while the rate of supply slows,” said Maru.
Following the first halving in November 2012, Bitcoin’s price jumped around 9,500% to a peak of $1,160 in one year, while after the 2016 halving the price rose by 3,040% to $19,660 around 18 months later. After the halving in 2020 the price took time to rise but ended up 802% higher to a top of $73,800 almost four years later.
However, not all were convinced. Nigel Green, founder of deVere Group, said: “It is likely to be a major price non-event. Investors, traders and speculators priced in the halving months ago. As a result, a significant portion of the positive economic impact was experienced previously, driving up prices to fresh all-time highs last month.”
Indeed, Bitcoin reached a new all-time high of $75,830 on March 14 2024.
Either way, Maru said it is clear cryptocurrencies are becoming an increasingly significant part of the financial world, despite some likening it to the ‘wild west’, a term given after several scandals.
“From being a niche digital currency to a defined asset class, with approximately one in five Americans owning crypto, the future appears bright. Bitcoin has experienced a surge in retail and institutional activity following the announcement by the US Securities and Exchange Commission (SEC) in January approving the long-awaited Bitcoin ETFs (exchange traded funds). To date, the total fund assets in these ETFs has reached $56.2bn, representing about 4.4% of Bitcoin supply,” said Maru.
Progress is being made on regulatory frameworks for cryptocurrency, he added, including the Markets in Crypto-Assets Regulation (MiCA) in Europe, which came into effect last year.
“Bitcoin, as the pioneer, has inspired the creation of new blockchains that are more scalable and have added utility, such as decentralised apps and smart contracts. Despite this, Bitcoin's dominance continues to hold as the original truly decentralised blockchain,” he said.