Bitcoin stands for spectacular price gains and dramatic setbacks. Now Bitcoin enthusiasts are looking forward to an event from which they hope to make a big profit. But they could be wrong.
A special event will soon take place for Bitcoin fans from which they are hoping for spectacular price gains. But the opposite could happen.
It’s about the so-called halving of the cryptocurrency, which takes place approximately every four years. This reduces the number of Bitcoins that are created in a certain period of time. The background: The inventor or inventors of Bitcoin with the pseudonym Satoshi Nakamoto limited the number of digital coins to 21 million when programming the cryptocurrency. The Bitcoins were not distributed in one fell swoop, but were created gradually as a reward for solving complex calculation problems. This requires more and more computing power. This reward is halved approximately every four years, and as things stand it will happen again tomorrow, Saturday.
The extent to which “halvings” influence the Bitcoin price is completely unclear. In the last such event in 2020, the price rose by twelve percent in the following week. A few months later, a larger rally began. But other reasons may have led to this: from the ultra-loose monetary policy of the central banks to small investors who invested their money in Bitcoin instead of in leisure activities due to the pandemic-related restrictions. Stock markets also rose sharply at that time. During the “Halving” of 2016, the cryptocurrency managed to gain just 1.3 percent – before it plummeted some time later. In addition, investors should be careful about drawing conclusions about future developments from past price trends – and not just for Bitcoin.
Because the cryptocurrency market is hardly regulated, it is difficult to understand who is buying or selling it and why, especially with the extremely volatile cryptocurrency. The major US bank JP Morgan believes it is possible that Bitcoin will lose value after the “halving” – especially because the cryptocurrency had recently shot up to a record level of around $73,700. The price has now fallen to around $64,600, but Bitcoin has still gained almost 50 percent since the beginning of the year.
Bitcoin funds are driving the price
Bitcoin not only shook off the collapse of the crypto exchange FTX and the conviction of its founder Sam Bankman-Frieds for financial fraud and money laundering, whereupon the price plummeted to below $17,000. Before Bitcoin took off, Changpeng Zhao, another crypto icon and founder of the world’s largest crypto exchange Binance, pleaded guilty to money laundering in a US court.
Bitcoin has entered the mainstream despite the project not having any major meaningful legal use. Anyone who buys Bitcoin as an investor speculates that the price will rise because more and more people are betting on rising prices.
The main reason for the hefty profits since the beginning of the year: the US Securities and Exchange Commission (SEC) had allowed Bitcoin funds. As a result, around a dozen US asset managers launched special so-called ETFs, i.e. exchange-traded funds that track the price development of Bitcoin. These products allow investors to invest in the cryptocurrency without having to purchase it directly or hold it. The fund of the world’s largest asset manager BlackRock had raised around $18.7 billion by the end of March.
And the halving? For crypto enthusiasts, this event makes a sought-after thing scarce, thereby increasing its value. Others, however, see this as a purely technical process that is exaggerated in order to drive up prices in the short term. One thing is certain: in the highly speculative world of cryptocurrency trading, it is impossible to predict how the Bitcoin price will develop.