Bitcoin has seen a rapid rally this year. The upcoming halving of new daily Bitcoin supply this Saturday is fueling speculation further.
In reality, the digital currency Bitcoin is not for the faint of heart. However, in these weeks the owners of the oldest and largest cryptocurrency look more calmly at their digital wallets, as the price repeatedly reaches record levels. Since the beginning of the year alone, Bitcoin has gained around 50 percent, causing memories of the dramatic price drop after November 2021 to fade.
However, in recent days, Iran's attack on Israel and profit-taking have cooled the overheated Bitcoin business again and pushed the price from around $71,000 to temporarily below $61,000. On Thursday, Bitcoin was back trading at just under $63,000.
Rise of Bitcoin through ETFs in the US
Experts attribute the boom experienced since the beginning of the year mainly to high demand from several ETF providers, who have been allowed to offer new Bitcoin funds in the US since January. This makes it possible for investors to invest in the digital currency without having to purchase and store it themselves. But the rally is also being fueled by the prospect of slower Bitcoin growth as the reward for verifying Bitcoin transactions is halved later this week.
According to Bitcoin's technical protocol, the fourth so-called halving will be implemented on Saturday morning. Satoshi Nakamoto, the mysterious pseudonymous founder of Bitcoin, had stipulated that the total amount of all Bitcoins would be limited to 21 million. According to him, Bitcoins should not be distributed all at once. Therefore, Bitcoin holdings are gradually becoming available by solving complex calculation problems.
For each new block in the public Bitcoin database (“blockchain”), the miner who calculated it can receive a reward. The so-called block subsidy aims to encourage miners to secure the network. At the same time, new Bitcoins are issued.
At the beginning of the Bitcoin era in 2009, the reward was 50 Bitcoins per new block. According to Satoshi Nakamoto's rules, the reward was halved every 210,000 blocks, approximately every four years. With the first halving in 2012, 50 Bitcoins were converted into 25 digital currencies, four years later the reward was only 12.5 Bitcoins. Since May 2020, 6.25 Bitcoin per block have been distributed. Now the next halving is approaching.
Bitcoin miner reward halved
“Cutting the miner reward to 3,125 Bitcoin will again halve the number of tokens fed into the system,” explains Eric Demuth, co-founder and CEO of crypto trading platform Bitpanda. “Based on the principle of supply and demand, this could lead to an increase in the price of Bitcoin if demand continues to outpace the now-declining supply expansion.”
Crypto entrepreneur Peter Grosskopf of Berlin fintech Unstoppable Finance also points out that in the past there has always been an increase before and after the halving. “We have already seen the increase before the halving in recent months. Markets are psychology. Therefore, history may repeat itself here again. But I am not a fortune teller and I normally refrain from making predictions and speculations.”
Many consumers are skeptical
Despite the record prices, many traditional investors are not in a bullish mood. They do not expect the price of Bitcoin to approach $100,000 or more. According to a Deutsche Bank survey, at least consumers in the US are divided on the performance of Bitcoin: around a third expect the cryptocurrency to fall below $20,000 by the end of the year. That would be a discount of about $50,000 from the current price and would bring the Bitcoin token back to bear market levels in 2022.
Only one in ten of the more than 3,600 respondents consider that Bitcoin will exceed $75,000 by the end of the year. 40 percent believe Bitcoin will prosper in the coming years, while 38 percent expect it to disappear.
Due to the high uncertainty, German consumer advisory centers do not see Bitcoin as a suitable investment for consumers. They point out the risks: “Here it is worth mentioning the huge price fluctuations, including total losses and the lack of security systems.”
Will miners continue mining?
Just as it is difficult to predict the price of Bitcoin, the consequences of the halving for the miners, who keep the Bitcoin store running with their special computers and use of large amounts of energy, remain unclear. If the reward for “mining” new Bitcoins is halved, this could put many market participants in trouble. “In fact, the halving could lead to less efficient or expensive miners leaving the market, especially those that rely on outdated or less efficient processes and hardware, or simply have too high energy costs,” says the head of Bitpanda, Demuth.
According to Demuth's assessment, a sharp price increase could also occur, which in turn would lead to mining remaining profitable for most market participants. “However, this is all very speculative. What is certain is that professional miners have been able to and have been preparing for the halving for a long time and will continue to work profitably afterwards.” Demuth believes the mining landscape will change. “However, I don't think this will have much of an impact on the network.”