Bitcoin stages comeback
Observer says it’s reminiscent of 2017 bubble frenzy
NEW YORK: It’s been left for dead more than once, written off as nothing but a bubble and denounced as rat poison by one of the world’s most famous investors. Yet bitcoin is once again staging a comeback reminiscent of the token’s glory days, with evangelists pegging their hopes on a technical event as the new catalyst.
True believers say the gains are driven by bitcoin’s upcoming halving, when the rewards miners receive for processing transactions will be cut in half as soon as May 12.
The Internet is glutted with second-by-second countdown clocks and the mania is even spurring a hike in hiring by crypto firms worldwide. Bitcoin has rallied to near US$9,000 in anticipation from around US$6,000 just a month ago, adding more than Us$1.3bil in value.
“Narratives in the world of blockchain act like the Force in Star Wars – they mysteriously move and shape the market,” said George Mcdonaugh, co-founder of crypto and blockchain investment firm KR1.
“You couldn’t be blamed for getting a little excited about what’s to come.”
Bitcoin halvings, which slow down the rate at which new tokens are created, happen once every four years or so. Its third such event is set to occur next week. Sceptics argue crypto prices are notoriously volatile and often difficult to pin explanations to, positing that any appreciation should be priced in ahead of time. But crypto fans cite historical precedent.
Bitcoin’s undergone two prior halvings – or halvenings, as they’re sometimes called – which saw its price appreciate in the aftermath.
The world’s largest token rose from around US$12 to over US$1,000 in the year following its 2012 cut in rewards, and advanced about 1,000% in the wake of the 2016 halving, though that reduction happened at a time when the coin was gaining greater mainstream recognition.
The frenzy around digital currencies took it to near US$20,000 the following year before it crashed, with the coin still trading about 50% below 2017’s all-time highs.
But bitcoin has historically bottomed 459 days prior to the halving, risen leading into the event and exploded to the upside afterward, according to research from Pantera Capital. Post-halving rallies have averaged 446 days – should history repeat itself, bitcoin could peak around August 2021.
Wallet growth has also spiked, rising 2% in April, the largest monthly increase since at least November.
To Nicholas Colas at Datatrek Research, there’s two possible explanations: bored, locked-down gamblers and sports betters are finding their way into cryptocurrencies amid the coronavirus shutdown, while many are also getting excited about bitcoin’s halving, he wrote in a recent note.
To be sure, many crypto fans also point to unprecedented monetary and fiscal stimulus unleashed by central banks around the world as a catalyst for prices to advance. Whatever the reason, the recent bull-run hype has ushered in the return of sky-high price targets. Global Macro Investor’s Raoul Pal projects bitcoin could reach Us$1mil in the next threeto five years. Though the halving isn’t the key driver behind his prediction, it could be a potential accelerant.
“It is already the best performing asset in all recorded history,” Pal wrote in a recent presentation.
“It was born out of the financial crisis for exactly what is about to come in this crisis. This is literally what bitcoin was invented for.”
Jefferies LLC analyst Christopher Wood in his weekly “Greed & Fear” newsletter recommended investors – including institutions – buy bitcoin ahead of the halving, citing the token’s prior price surges around the event.
“To invest in bitcoin it is necessary to believe the system has integrity in the sense that the supply is truly limited,” he wrote. The digital token should be a source of diversification “precisely because of its truly decentralized nature,” he said. —