A significantly reduced supply and falling confidence in traditional currencies could be two reasons why Bitcoin’s recent rally could continue in May, according to deVere Group’s Nigel Green.
The digital currency has rallied hard in recent weeks as risk sentiment has slowly return to risk assets after the coronavirus crisis prompted some heavy falls.
Bitcoin is currently trading around the $8,500 mark although Green, the chief executive and founder of deVere Group, thinks it can move significantly higher in the near term.
“The Bitcoin price will hit at least $10,000, even before the four-yearly ‘halving’ event taking place in two weeks,” he said.
Bitcoin’s ‘halving’ event takes place later this month. Occurring every four years, the supply is reduced as less and less Bitcoin will be mined. Unlike traditional currencies, Bitcoin was designed with a fixed supply and predictable inflation schedule, there will only ever be 21 million bitcoins.
In 2012, the number of new Bitcoins issued every 10 minutes fell from 50 to 25 while in 2016 it went down from 25 to 12.5. Now, in the 2020 halving, it will drop from 12.5 to 6.25.
Performance of Bitcoin in 2020
Source: Coin360
Green’s prediction came as the price of the world’s largest cryptocurrency soared by more than $1,500 on Thursday, moving it to its highest value since February. It fell back to $8,500 on Monday.
US research agency Fundstrat predicts that Bitcoin will surge to $17,000 within six months. This prediction is strengthened by the news that Bitcoin crossed above the key 200-day moving average in April. If the price remains above this moving average, BTC/USDD uptrend could remain intact
Green added: “Investors are now increasing their exposure to Bitcoin as the halving – only the third in its 11-year history – will push up prices sharply due to the dramatically lower supply combined with a steady demand and increasing awareness of digital currencies.”
This is a familiar occurrence as previous Bitcoin halving events have prompted impressive price climbs. The 2016 halving triggered a 300 per cent jump in the value of Bitcoin.
But the 2020 one could be even more remarkable due to the impact of Covid-19 on our lives and financial institutions, believes the deVere CEO.
“The digitalisation of our lives is accelerating at a faster pace than ever before. We’re in an exciting new era driven by technology,” he added.
“This new world needs new ways of doing things to fit the new normal. Clearly, one of those things which is needed now more than ever, as the world becomes ever-more digitalised and globalised, is digital and global currency, such as Bitcoin.
“This will not have gone unnoticed by investors who are increasingly piling into cryptocurrencies.”
Conversely, efforts from central banks to stabilise economies has increased monetary supply. By printing never-seen-before amounts of money, traditional currencies have become devalued and fears of inflation have risen.
Don Guo, the chief executive of fintech group Broctagon, is clear that the government stimulus packages certainly have a role in this bull run for digital assets.
“Investors are hoping to hedge against the turbulence in traditional markets and with Bitcoin not tied to any government decisions and inflation, it becomes like a good bet,” he said.
Not only does halving boost the price as a result of the added scarcity but combined with the additional media attention and the positive impact this has had on Bitcoin prices historically, this could support demand.
Bitcoin’s halving event would have put 2020 on course to be a good year regardless, but could have strengthened its position and increased investor interest.
Green said: “The excitement of the forthcoming rare halving event, together with the new era we’re in, will drive the price of Bitcoin exponentially and sustainably. Beyond that, we could see an explosion in the price of Bitcoin due to real-world issues it addresses and increasing adoption.”
However, not all analysts are as sure that Bitcoin can maintain its recent upward trend. Substantial short-term falls in the digital currency have been witnessed on many occasions, especially after strong speculation-based runs.
Craig Erlam, senior market analyst at OANDA Europe, said the currency will be continued “hype” if it is going to move above $10,000.
“Bitcoin is holding above $8,500 after peaking around $9,500 last week. It's often difficult to attribute the moves in Bitcoin to anything in particular but the proximity to the halving event seems logical, from the perspective that it gives it exposure rather than anything more fundamental. You would think that anything significant would be priced in by now,” he said.
“Whether the exposure can see it through $10,000 is one thing; whether it can sustain it is another. We've seen it before, the mere act of it rising fast creates the stories which generates the exposure. If that doesn't happen, any rally may quickly fizzle out and we could find ourselves back at the early April levels.”